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When the economy is stuck (stagnant) but prices keep rising (inflation) - the worst of both worlds.
Why It Matters
Stagflation is every investor's nightmare because the usual fixes don't work. Normally, the Fed fights inflation by raising rates (which slows the economy) or fights recession by lowering rates (which can cause inflation). With stagflation, you have both problems at once. The 1970s stagflation crushed stocks - the S&P 500 went nowhere for a decade while prices doubled.
Key Points
- Happened in the 1970s due to oil shocks and loose monetary policy
- Stocks and bonds both tend to perform poorly during stagflation
- Commodities, TIPS, and real assets often outperform during stagflation
Related Terms
Common Questions
When the economy is stuck (stagnant) but prices keep rising (inflation) - the worst of both worlds. Stagflation is every investor's nightmare because the usual fixes don't work. Normally, the Fed fights inflation by raising rates (which slows the economy) or fights recession by lowering rates (which can cause inflation).
Stagflation is every investor's nightmare because the usual fixes don't work. Normally, the Fed fights inflation by raising rates (which slows the economy) or fights recession by lowering rates (which can cause inflation). With stagflation, you have both problems at once. The 1970s stagflation crushed stocks - the S&P 500 went nowhere for a decade while prices doubled.
Happened in the 1970s due to oil shocks and loose monetary policy
Stocks and bonds both tend to perform poorly during stagflation
Commodities, TIPS, and real assets often outperform during stagflation