MW America is being haunted by a 1970s bogeyman known as stagflation. Here's how big the threat is.

By Jeffry Bartash

Higher inflation and a slower economy can be a toxic brew

Long lines at gas stations were a common scene during the era of stagflation in the mid-1970s and early 1980s.

The Iran war has revived the specter of a 1970s bogeyman known as stagflation - a period of high inflation and miserable economic growth.

Just how big of a threat is it?

The U.S. is clearly staring at another increase in the rate of inflation due to a surge in the price of oil - the DNA of the global economy. If an oil shock persisted long enough, economic growth could also sputter.

In a worst-case scenario, the stock market could crater, the Federal Reserve could raise interest rates and the cost of borrowing could rise.

In short, recession. Maybe even a deep one.

"The oil shock could destroy demand and dent global growth, with potential stagflation implications," Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a research note. "Each day the war rages, we see a reckoning slowly approaching."

The twin threats of higher inflation and slower growth can't be discounted. Yet the U.S. isn't facing a bout of true stagflation like it experienced a half-century ago - far from it.

"When we use the term stagflation, I always have to point out that was a 1970s term at a time when unemployment was in double figures and inflation was really high," Federal Reserve Chair Jerome Powell said during a press conference last week. "And that's not the case right now."

Not that 1970s show

Powell is right. The economy in the 1970s was dramatically different than it is today.

Fifty years ago, the U.S. was hit by a perfect storm of negative events that shook the nation's economic foundations to the core.

The initial trigger was steep increases in oil prices starting in the early 1970s, a time when the global economy was much more dependent on fossil fuels. The rate of U.S. inflation jumped from 3.2% in 1972 to 11% just two years later.

Eventually the rate of inflation crested at a record 13.5% in 1980, capping off nearly a decade of runaway prices.

Soaring inflation - along with misguided efforts by Washington, D.C., to control it - wreaked havoc on the economy. In just under a decade, from 1973 to 1982, the U.S. suffered three severe recessions.

The era of stagflation put millions of people out of work, especially after the Fed jacked up a key interest rate to double digits to try to tame rapidly rising prices.

The unemployment rate shot up to a post-World War II peak of 10.8% in 1982, a height only exceeded, briefly, after the outbreak of the coronavirus pandemic six years ago.

Can these conditions re-emerge in the near future?

The 1970s were unique, economists say, and world has changed dramatically. Economies are less dependent on oil, for one thing, and they have more shock absorbers to cushion the blow.

"Stagflation today is not possible," contended Steve Blitz, chief U.S. economist at TS Lombard. "It's just not."

'This is not stagflation'

Compared with the 1970s, the U.S. economy today is in an infinitely better place.

Start with inflation. The Fed's preferred inflation gauge, known as the PCE price index, rose at a 2.8% rate in the 12 months that ended in January.

By contrast, the PCE inflation rate never fell below 3% in any month from 1969 to 1985 - a 16-year stretch. For most of that time, inflation was much higher.

The U.S. unemployment rate, meanwhile, has moved up to 4.4% from an extremely low 3.4% several years ago.

By contrast, the jobless rate averaged 7.7% from the mid-1970s to the early 1980s, marking the worst bout of unemployment until the 2007-09 recession.

Finally, the growth rate of the of the economy has, if anything, exceeded expectations.

Until very recently, the Fed believed the economy's sustainable rate of growth was no more than 1.8% a year. That's how fast the central bank thought the U.S. could expand without stoking inflation.

Instead, gross domestic product, the official scorecard of the economy, has expanded at an average annual rate of 2.6% in the past four years.

"This is not stagflation. The economy is growing higher than potential," said Eugenio Aleman, chief economist at Raymond James. "That takes half the equation out."

The Fed, in fact, just raised its long-term forecast of the economy's potential growth to 2% from 1.8%. It was the first increase in 10 years, stoked in part by optimism about a new revolution in technology.

The Fed also nudged up its GDP forecast this year to 2.4% from 2.3%, even as the conflict with Iran raged.

The forecast for inflation was also raised, but the Fed still thinks prices will increase less than 3% in 2026, assuming the conflict with Iran simmers down.

The trouble faced by the U.S. economy now is "nothing like what [the Fed] faced in the 1970s," Powell said. "I reserve 'stagflation' for that - the word - for that period. Maybe that's just me."

Don't expect the word stagflation to disappear, though. It crops up in Google searches and popular media virtually any time the U.S. is seen as susceptible to slower economic growth and somewhat higher inflation.

-Jeffry Bartash

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March 24, 2026 10:44 ET (14:44 GMT)

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