Wall Street strategists are sounding the alarm that the US economy is drifting toward stagflation as the impact of trade tariffs begins to surface, potentially restricting the willingness of the Federal Reserve to slash interest rates. While investors have largely shrugged off warning signs until now, data suggest an approaching period of sticky inflation and sluggish economic growth.
The arrival of stagflation in earnest would put Donald Trump’s administration in the company of that of President Jimmy Carter and the economic afflictions of the late 1970s. The biggest warning sign so far is the historic damage being done to the US dollar—down 8% against a basket of peers.
Traders are nevertheless focused on near-term profits, piling into bets that the central bank will cut rates as soon as next month. Those bets accelerated after a report on Friday showed the US labor market cooling significantly over the summer (and prompting Trump to fire the commissioner of the Bureau of Labor Statistics.)
But while investors hope for a rate-cut boost, those strategists warn that Trump’s sweeping new tariffs, if they are upheld by the courts, could upend that outlook as higher prices get passed on to consumers and companies, reigniting inflation. —Jordan Parker Erb
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And that’s exactly what more Americans expect to happen. US consumer inflation expectations rose in July according to a monthly survey by the Federal Reserve Bank of New York. Expected inflation for the year ahead ticked up to 3.1%, from 3% in June. And while the survey showed brightening perceptions of the labor market despite rising unemployment, Labor Department data showed recurring applications for unemployment benefits surged to the highest since November 2021. Meanwhile, the latest monthly inflation data showed prices of goods most exposed to tariff increases picked up in June.
Meanwhile Fed Governor Christopher Waller is emerging as a top candidate to serve as the central bank’s chair, as Trump’s advisers look for a replacement for Jerome Powell. It’s said they are impressed with Waller’s willingness to make policy based on forecasts rather than current data. Kevin Warsh, a former Fed official, and Kevin Hassett, Trump’s National Economic Council director, are also said to remain in contention. The post will open up when Powell’s tenure as chair expires in May—unless Trump tries to fire him first.
Trump signed an executive order telling his aides to re-evaluate government guidance on the inclusion ofprivate equity, real estate, cryptocurrency and other alternative assets in 401(k)s. While it remains unclear what effect the order will actually have or whether rulemaking from federal regulators or Congressional legislation is needed, it nevertheless looks like a major victory for industries hoping to get their hands on the roughly $12.5 trillion held in American retirement accounts.
Israeli Prime Minister Benjamin Netanyahu said he plans to take full control of the Gaza Strip, moving away from talk of a ceasefire and potentially further isolating Israel on the world stage. The decision would mark a radical escalation by the embattled Israeli leader in the largely destroyed territory, where tens of thousands have been killed since Hamas’s 2023 attack on Israel, and where the United Nations says half a million people are starving.
Intel shares fell after Trump called on its chief executive to resign. In a social media post, the 79-year-old US president claimed Lip-Bu Tan has a conflict of interest, though without giving any evidence or details as to what exactly he means. The post came after Republican Senator Tom Cotton asked the chairman of Intel’s board this week to answer questions about Tan’s ties to China, including investments in the country’s semiconductor companies and others with connections to the country’s military.
Lip-Bu Tan, chief executive of Intel Corp. Photographer: Bloomberg
