Stagflation Signals: What Three Key Economic Metrics Reveal About the U.S. Economy

The U.S. economy is flashing warning signs that could spell stagflation—a dreaded combination of soaring prices, job losses, and stalled growth all happening simultaneously. While mainstream financial institutions have debated whether stagflation is already upon us, economists across the board are increasingly vocal about the risks ahead. To understand where we’re headed, it’s worth tracking three critical economic indicators that tell the real story.

Inflation Remains Alarmingly Elevated

Let’s start with the most visible pain point: inflation. The Consumer Price Index (CPI) measures how fast everyday prices are climbing for goods and services Americans rely on. In February, year-over-year CPI growth hit nearly 8%—the highest level seen in roughly 40 years. Over a three-year period, the CPI has averaged annual increases of 4.3%.

What’s driving this? The geopolitical crisis in Eastern Europe sent energy markets into overdrive, with gas prices becoming a significant inflation culprit. The Federal Reserve has already started raising its benchmark lending rate and signaled more hikes are coming to combat rising price levels. The message is clear: inflation is real, persistent, and top of mind for policymakers.

Employment: Still Strong, but Fragile

The employment picture presents a starkly different narrative—at least for now. The unemployment rate, which plummeted from pandemic highs near 15% early in 2020, had stabilized below 4% by February. Some analysts even suggested the economy had achieved near-full employment, where most willing workers are employed.

However, this calm shouldn’t breed complacency. Prominent economists have warned that average unemployment could breach 5% in coming years as economic headwinds intensify. Wage growth has ticked upward over the past 12 months, though the gains haven’t kept pace with inflation—a real concern for purchasing power. The risk remains that labor market strength could deteriorate faster than expected.

Economic Growth: Decelerating Under Pressure

The third leg of the stagflation stool is economic growth itself, best measured by GDP expansion. Historically, the U.S. economy rarely sustained growth above 3% annually (anything 3% or higher is considered healthy). The pandemic delivered a sharp shock—a 3.4% contraction in 2020—followed by a robust 5.7% annualized rebound in 2021.

But momentum is fading. Growth estimates for this year have been repeatedly slashed, with the Federal Reserve now projecting expansion below 3%. While this isn’t catastrophic given that the U.S. has averaged just 1.8% growth over the past 22 years, it signals an economy losing steam at precisely the wrong time.

The Stagflation Verdict: Not Yet, But the Risk is Real

Put these three pieces together and the picture becomes clearer. Currently, low unemployment and unpredictable growth patterns suggest the economy hasn’t fully crossed into stagflation territory based on the latest data. But this could shift rapidly.

The wild card is whether the Federal Reserve can execute a “soft landing”—raising rates aggressively enough to tame inflation without triggering a recession. Unemployment could spike, growth estimates could slip further, or inflation could prove more stubborn than anticipated. Conversely, economic conditions might stabilize faster than pessimists expect.

The bottom line: these three metrics are your window into whether stagflation becomes reality or remains a threat that never fully materializes. Keep monitoring them closely.