Is the worst of both worlds returning? Understanding stagflation risk – a stagflation primer

May 2025

The Trump administration is giving every indication that its trade policies will be a departure from those that have been favored by the US in the post-World War II era.

For example, the sweeping tariffs thus far announced (and subsequently delayed) by President Trump are unprecedented in their scale and breadth. As a result, many economists have downgraded their outlook for economic growth in the US and increased the probability of higher inflation. The combination has led to some whispers about the possibility of stagflation.

Few things scare economists like the prospect of stagflation, given its potential to do lasting harm to the economy and living standards. Many investors likewise fear stagflation, as it has historically led to losses for most major asset classes. In this research note, we describe stagflation, provide historical context and discuss its causes. We focus on the impact stagflation has had on capital markets, and we analyze the assets classes that may serve as a hedge during a stagflationary period.