MW 'Stagflation is coming to the U.S.,' says this economist. Here's what it means for the dollar, bonds and stocks.

By Jules Rimmer and Jamie Chisholm

The greenback faces a Wile E. Coyote moment, says Savvas Savouri

There may be loads of dollars on offer

"If you look through the front windscreen rather than the rear-view mirror, it's clear to see stagflation is coming to the U.S."

That's the opinion of Savvas Savouri, managing director of QuantMetriks, an economic advisory boutique headquartered in London.

As one might imagine, after a long career spanning academia, several investment banks and an extended stint as the economist at fund management firm, Tosca Capital, Savouri has strong opinions on economies, markets and asset prices, and expresses them unequivocally.

His views on the direction of the U.S. economy are emphatic: inflation is going up, the dollar is going down and the yield curve is steepening.

The inflationary pressures he cites are threefold: a declining dollar (which makes imports more expensive), the restrictions on cheap migrant labor pushing up costs and higher tariffs. That the impact of the tariffs have not manifested itself in data thus far is because they are lagging indicators, he says.

Savouri is adamant that tariffs can only ever be inflationary, as was, he points out, almost all of Trump's campaign manifesto. He cites especially the pledges to re-shore manufacturing and the One Big Beautiful Bill Act earlier this summer that he regards as "printing money".

In a note entitled "The Inflationator vs The Powell," Savouri predicted Powell's tenure at the Fed may be much shorter than the official departure date of May 2026, owing to the pressure being exerted by the White House.

He draws an analogy with the central bank governors of Japan (Shirakawa in 2013) and Turkey (Agbal in 2021) who were discarded for not cutting rates when the political leaders demanded it. It wasn't so much "the central bankers [who] were carried out of the monetary ring," he quips, "but the respective currencies".

Given his expectations for Powell, the direction of interest rates and inflation then, it's perhaps unsurprising Savouri is decidedly bearish on the dollar, describing a Wile E. Coyote moment of turbo-paralysis before it falls victim to gravity.

This may be welcomed by the Trump administration. Indeed, a big call by Savouri is that any meeting between Trump and China's president Xi Jinping this year will deliver an agreement by Beijing to allow the renminbi to appreciate to help make U.S. goods more competitive. He thinks the buck's current peg to the Hong Kong dollar will thus be removed.

As he sees it, if the dollar falls in tandem with Fed rate cuts and mounting inflation, then the U.S. Treasury yield curve must steepen (longer-term yields BX:TMUBMUSD30Y rising faster relative to short-term yields BX:TMUBMUSD02Y) even more sharply than it has already.

Savouri asks, rhetorically, "Who is going to buy long-term U.S. debt because he's [Trump] just launched a trade war against the traditional buyers?"

His recommendation to investors looking to shield themselves from such adverse movements is to buy TIPS - or Treasury Inflation-Protected Securities - that adjust interest payments to match inflation.

He also thinks these adverse developments could be beneficial to stocks, but not all of them. He argues inflation is good for those stocks - particularly the large caps/big tech that can pass on costs to consumers - that have a good percentage of their earnings overseas in other currencies, and whose balance sheets are strong enough to handle a higher-rate environment.

The S&P 500 SPX might be fine then, but the Russell 2000 RUT or other small/mid caps that operate within America only, or whose balance sheets have a lot of short-maturity debt that will need to be refinanced at punishingly high rates of interest, will struggle, Savouri warns.

He is no advocate of cryptocurrencies (BTCUSD) as a method to hedge against potential dollar ructions, and in fact believes their adoption now presents a systemic risk to American financial infrastructure. But Savouri does like gold (GC00) as a reciprocal of the dollar and he's convinced that Australian demographics and fundamentals makes the Australian dollar (AUDUSD) the best bet in foreign exchange markets.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is lower, while oil prices (CL.1) rise.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6340       0.01%   0.95%   7.79%    19.19% 
   Nasdaq Composite                                                     21,242.70  0.57%   2.97%   10.00%   27.51% 
   10-year Treasury                                                     4.249      2.40    -16.30  -32.70   30.30 
   Gold                                                                 3488.9     4.39%   4.68%   32.19%   41.40% 
   Oil                                                                  63.97      -7.77%  -4.34%  -10.99%  -15.93% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. president Donald Trump said he will nominate his economic adviser Stephen Miran as a temporary Federal Reserve governor.

St. Louis Fed president and Federal Open Market Committee member Alberto Musalem takes part in a 'fireside chat' on banking and credit at 10:20 a.m. Eastern.

Gold futures (GC00) broke above $3,500 an ounce, hitting a record high before pulling back, after a report the U.S. is slapping tariffs on imports of 1 kg gold bars.

Trade Desk shares (TTD) are diving after results that contained poorly-received guidance and news of a change of chief financial officer.

Expedia shares (EXPE) are surging after the travel booking company raised its full-year outlook on the back of forecast-beating earnings.

SoundHound stock (SOUN) is bouncing after the voice-based artificial-intelligence company exceeded revenue expectations for the latest quarter.

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The chart

Ned Davis Research produces Rally Watch, a gauge containing a number of indicators, such as investor sentiment, market breadth and the trend of the Cboe's VIX index VIX. Tim Hayes, chief global investment strategist at NDR, notes that the percentage of Rally Watch indicators is trending lower. "[T]he bull [market] has been reaching old age with the conditions right for a bear to get started," he says.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   PLTR    Palantir Technologies 
   SOUN    SoundHound AI 
   AAPL    Apple 
   AMD     Advanced Micro Devices 
   GME     GameStop 
   AMZN    Amazon.com 
   TSM     Taiwan Semiconductor Manufacturing 
   NVO     Novo Nordisk 

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-Jules Rimmer -Jamie Chisholm

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August 08, 2025 06:57 ET (10:57 GMT)

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