Stagflation fears rise amid Trump tariffs

The U.S. economy is facing significant challenges as President Donald Trump's tariffs continue to impact trade and economic growth.

The threat of stagflation has become a major concern among economists and investors.

This economic condition, last seen in the U.S. during the 1970s, could undermine living standards by increasing prices while making jobs and pay raises harder to come by.

Trump's tariffs on goods from countries like Canada, Mexico, and China have raised fears of a recession as early as the second quarter of 2025, should they be fully implemented and met with retaliatory measures.

The uncertainty surrounding these tariffs is already affecting consumer confidence, which has dropped significantly, with the University of Michigan's consumer sentiment index experiencing a 10.5% month-over-month decline in March.

Investors are responding to these economic signals by shifting towards stagflation-linked strategies.

Goldman Sachs' stagflation basket, which includes commodities and defensive sectors like healthcare, has surged nearly 20% this year, outperforming both the S&P 500 and Bitcoin (CRYPTO:BTC).

The S&P 500 has dropped 4%, while Bitcoin has fallen 10%.

Noelle Acheson notes that while Bitcoin's appeal as a safe haven remains, its correlation with U.S. stocks has strengthened recently, making it behave more like a risk asset in the short term.

However, she believes that once market uncertainty subsides, Bitcoin could regain its safe-haven status.

Markus Thielen suggests that the current situation might not be true stagflation but rather a temporary spike in commodity demand due to tariff impacts.

He anticipates that a potential dovish tone from the Fed could revive growth-oriented assets.

The economic outlook remains uncertain, with forward-looking inflation metrics rising and real-time GDP trackers signaling a sharp contraction in economic activity.

As the Fed prepares to review interest rates, the market is watching for signs of whether the economy will indeed enter a period of stagflation or if growth will rebound.