We who remember the 1970’s Stagflation
We who remember the 1970’s inflation got to watch new generations learn how it feels. They haven’t enjoyed it, to say the least. I’d like to reassure them the worst is behind us. Unfortunately, I’m not sure it is.
Inflation went over 4% peaked in 2022 but remains stuck above the pre-pandemic rate. I see little reason to think it will fall much from here, at least in the next few quarters – and quite a few reasons to suspect it could rise.
The inflation rate is a rate, not a level. If you have a year of, say 5% inflation followed by a year of 1% inflation then yes, the inflation rate is lower. But prices are still 6% higher than they were two years earlier.
Inflation is a permanent increase in the price level.
Notice the gray bars, signifying recessions. Inflation accelerated during the deep and lengthy 1974-75 recession. This is what we mean by “stagflation.”
Even without interest payments, the US is still running a deficit of around 4% of GDP — an extraordinary imbalance.
“From Powell’s perspective, the picture is challenging. The Taylor Rule, which offers a guide for setting interest rates based on inflation and output, suggests that rates should be roughly 150 basis points higher than where they stand today.
“Yet Treasury Secretary Scott Bessent recently argued that rates should be 150 basis points lower than they are — a gap of 300 basis points from the Taylor Rule.
John Mauldin November 14, 2025
https://www.mauldineconomics.com/frontlinethoughts/running-hot
https://englundmacro.blogspot.com/2025/11/godmorgon-17-november-2025.html
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