Stagflation is when the economy experiences both high inflation and high unemployment. The last time America’s economy experience this was back in the 1970s. Many are now believing – including JP Morgan’s Jamie Dimon – that stagflation could be returning in 2024 and 2025.
This outcome would be the Federal Reserve’s and Jerome Powell’s worst nightmare. Because it would mean high inflation and unemployment. Meaning that they could not necessarily low interest rates to combat the inevitable recession that would come with stagflation.
Back in the 1970s the US reached a peak inflation rate of 14% and unemployment rate of nearly 11%. Things got so bad that the federal reserve had to hike interest and mortgage rate all the way to 18% by the early 1980s to combat this inflation.