Stagflation Fears Resurface as Inflation Rises, Unemployment Ticks Up

Fed Chair Jerome Powell downplays comparisons to 1970s stagflation, but economic data points to potential challenges ahead

Apr. 7, 2026 at 9:06am

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A minimalist abstract illustration featuring overlapping triangles and circles in shades of red, blue, and yellow, conceptually representing the interplay of inflation, unemployment, and economic stagnation.As the Federal Reserve grapples with rising inflation and mixed economic signals, the specter of stagflation looms over the US economy.Cleveland Today

Concerns about stagflation, a scenario characterized by high inflation, rising unemployment, and stagnant economic growth, have resurfaced in recent weeks as the U.S. economy grapples with soaring oil prices and mixed economic indicators. While Federal Reserve Chair Jerome Powell has dismissed comparisons to the 1970s, select data points suggest the puzzle pieces for stagflation may be falling into place.

Why it matters

Stagflation is the Federal Reserve's worst-case scenario, as it presents policymakers with a difficult dilemma. Lowering interest rates to spur economic growth can exacerbate inflation, while raising rates to curb inflation can further weaken the job market and economic activity. The potential return of stagflation would pose significant challenges for the central bank and the broader economy.

The details

The first sign of stagflation is rising inflation, which is being driven by skyrocketing crude oil prices that are increasing costs for consumers and businesses. The Federal Reserve Bank of Cleveland's Inflation Nowcasting tool predicts the trailing 12-month inflation rate for March will jump to 3.25%. The second factor, rising unemployment, is also emerging, with the unemployment rate ticking up steadily since the start of 2023 despite remaining historically low at 4.3%. The third variable, slowing or stagnant economic growth, is also starting to materialize, with the Federal Reserve Bank of Atlanta's GDPNow forecast for first-quarter GDP growth revised down to just 1.6%.

  • The Federal Reserve Bank of Cleveland's Inflation Nowcasting tool predicts the trailing 12-month inflation rate for March will jump 85 basis points to 3.25%.
  • The unemployment rate has been trending steadily higher since the start of 2023, reaching 4.3% in recent months.
  • In early March, the Federal Reserve Bank of Atlanta's GDPNow forecast for first-quarter gross domestic product (GDP) was over 3%, but the latest update as of April 2 shows first-quarter GDP clocking in at just 1.6%.

The players

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of the 12 regional Federal Reserve Banks that, together with the Board of Governors, make up the Federal Reserve System. It is responsible for monitoring economic conditions in its district and providing input to the Federal Reserve's monetary policy decisions.

Federal Reserve Bank of Atlanta

The Federal Reserve Bank of Atlanta is one of the 12 regional Federal Reserve Banks that, together with the Board of Governors, make up the Federal Reserve System. It is responsible for monitoring economic conditions in its district and providing input to the Federal Reserve's monetary policy decisions.

Jerome Powell

Jerome Powell is the current Chair of the Board of Governors of the Federal Reserve System, the central banking system of the United States.

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What they’re saying

“When we use the term "stagflation," I always have to point out that that was a 1970s term at a time when unemployment was in double figures, and inflation was really high, and the misery index was super high -- add them together and you get the misery index. We actually have unemployment really close to longer-run normal, and we have inflation that's, you know, 1 percentage point above that.”

— Jerome Powell, Chair, Board of Governors of the Federal Reserve System

What’s next

The Federal Reserve will closely monitor economic data in the coming months to determine if further policy adjustments are needed to address rising inflation and potential signs of stagflation.

The takeaway

While Federal Reserve Chair Jerome Powell has downplayed comparisons to the 1970s stagflation, the latest economic data suggests the puzzle pieces for this unwanted scenario may be falling into place. The central bank will face a delicate balancing act in the months ahead as it seeks to tame inflation without exacerbating unemployment or stalling economic growth.