Why stagflation fears are mounting
The last time the U.S. had to deal with a prolonged period of stagflation was during the 1970s, when a large increase in oil prices triggered a series of suboptimal decisions around monetary policy and ultimately fueled a recession early on in the following decade.
Now, the U.S. economy is showing signs of "stagflation-lite,” the title of Brusuelas’ recent analysis, as a growing number of economists are projecting a slowdown in growth and an uptick in prices as tariff policies come to life.
Of course, it’s worth noting that unemployment is fairly low. February's jobless rate was only 4.1%. By contrast, during the mid-1970s, it peaked at 9%. For this reason, economists aren’t necessarily predicting a repeat of the stagflation that occurred in the 1970s, but rather, a more mild version.
"I don't see any reason to think that we're looking at a replay of the '70s or anything like that," Federal Reserve Chair Jerome Powell said at a press conference after a recent central bank meeting, according to Reuters. "I wouldn't say we're in a situation that's remotely comparable to that.”
But Americans should still brace for a period of economic uncertainty ahead — one that may lead to higher costs across the board and lessen buying power on the whole.
In February, 63% of Americans said inflation is a big problem for the country, according to Pew Research Center. And in a February CBS News and YouGov poll, 77% of Americans confirmed that their income wasn't keeping up with inflation.
If prices continue to rise, it could push a lot of people into serious debt and have long-lasting impacts. So when it comes to investing for your future (if you can afford to do so), you’ll want to be extra careful with your approach.
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Learn MoreHow to invest wisely in times of economic uncertainty
It's hard to know what's in store for the U.S. economy in the course of the next few months. But it's important to financially prepare as best you can.
That means making sure you have a solid emergency fund with enough money to cover three to six months of essential bills as a starting point.
It's also a good time to pay off high-interest debt if you can. The Fed is unlikely to lower interest rates anytime soon given current inflation levels and general economic uncertainty (though the central bank did recently signal that it sees two more cuts coming before the end of the year). This means your credit card balances in particular may be costing you a lot of money.
We don't know what unemployment levels will look like for the remainder of the year. But if you're able to shed high-interest debt, that's one less expense to grapple with in the event of job loss.
Beyond that, it's important to invest your money strategically. During periods of economic instability, the stock market can be very volatile. And it's already been pretty rocky so far in 2025.
So you may want to consider two things.
First, make sure your risk profile aligns with your life plans. If you're aiming to retire in 2026, now's not the time to have 80% of your portfolio or more in the stock market. However, if you're decades away from retirement, a more stock-heavy portfolio may be appropriate since you have many years to recover from near-term market turbulence.
Next, make sure your portfolio is well diversified. This is important whether you're close to retirement or a long way off. Loading up on S&P 500 ETFs gives you exposure to the broad market, and it's a good option for people who don't have the time or skills to research stocks individually.
Given the potential for near-term economic shakeups, you may also want to add some recession-proof stocks to your portfolio. Certain health care and consumer staple stocks fit the bill, since these are things Americans may not be able to cut back on even if living costs rise or unemployment levels climb.
You can also look at inflation-resistant assets like real estate or Treasury Inflation-Protected Securities (TIPS). TIPS are Treasury bonds whose principal value rises as inflation increases. However, TIPS should be used as more of a long-term hedge against inflation rather than a short-term hedge.
Also be mindful of the fact that in the coming months, your portfolio value might swing. Try not to make rash decisions when that happens, like unloading assets at a loss. If you're invested appropriately for your age, you should be able to ride out whatever storm is coming until the market eventually recovers.
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