Fed to Markets: Trump’s Economy Is Trending Towards Stagflation

Today is Fedsday, a celebrated day in the markets every month or so where everyone stops what they are doing to listen to Fed Chair Jerome Powell and the big brains at the Federal Reserve descend from the heavens to tell us whether our modern sun god is angry at us or not. They decided not to cut interest rates at this meeting because folks, it is pissed. We have angered the sun. Look at our precious stock market. It’s in a formal correction already. Trump took line make boing. Gold is going parabolic like it’s Bitcoin while Bitcoin crashes as its holders lose faith in Trump. Interest rates are bouncing around like shitcoins and forming an inversion on the short end of the yield curve, and now, the Fed is outright saying that Donald Trump’s agenda is a big uncertain risk to the entire economy. Powell said the Fed “think[s] it’s a good time for us to await for further clarity” on tariff policies their economists believe are threatening America with something that was once thought to be impossible before the 1970s proved otherwise.

Last year after Joe Biden’s debate heard ’round the world, I wrote about high-level traders betting on two of the three elements of stagflation, low growth and high inflation. If you add persistently high unemployment to that combination, you get stagflation, the worst thing that can happen to an economy outside an outright depression. Today, the Federal Reserve confirmed that those traders were on to something, as the Wall Street Journal’s Fed whisperer Nick Timiraos summarized:

Fed officials marked *down* their forecasts for GDP and *up* their forecasts of inflation and unemployment, but…

Almost all of them see the risks to the downside on growth

And almost all of them see the risks to their unemployment and inflation forecasts to the upside

Fucking yikes, man. Jerome Powell did his usual song and dance where the pre-press conference statement was decidedly hawkish, and then he spent the press conference being the American economy’s preeminent hype man while acknowledging that “there may be a delay in further progress” in bringing down inflation.

Huh, I wonder why there might be a delay in bringing down inflation under the self-described Tariff Man.

April 2nd is when Trump’s new escalated trade war will go into effect, and while the details are still muddled, we reportedly could return the U.S. to the early 1930s baseline of 20 percent tariffs. The early 1930s, you know, that classic period in time that everybody associates with widespread prosperity and economic growth. What a great idea from the businessman president.

In all seriousness, this is very bad, and the Fed echoing the direction the bond markets have been pointed in since September is only more confirmation this is all going to get a lot worse before anything gets any better. The economy wasn’t in great shape when Trump took over, but it certainly wasn’t in bad shape and it was doing far better coming out of the pandemic than its Western peers. But in just a few months, Trump has destroyed all that progress and taken the Atlanta Fed first quarter GDP projection from around three percent to around negative two percent, and the Fed has now handed the market a bunch of data and words that spell out stagflation. Trump got very mad at the Wall Street Journal for comparing him to Herbert Hoover last week, the president during those famously prosperous years of 1929 to 1933, but at this rate, that may wind up looking like a compliment in comparison to the sprawling economic crisis that Trump is threatening to create in the midst of this vast constitutional crisis.