US Economic Data Rekindles Stagflation Concerns, Downgrades Job Growth

Recent economic data from the US points to a troubling stagflation scenario characterized by persistent inflation alongside slowing growth and employment contraction. Key indicators such as the ISM Services index showed a marginal expansion with significant inflationary pressures, as the 'prices paid' sub-index hit a near three-year high, while employment components continued to contract. This has raised concerns among policymakers and investors about the difficulties of simultaneously managing inflation and economic growth. Federal Reserve officials expressed mixed signals, with the policy statement showing dovish elements but Chair Powell emphasizing concerns over inflation persistence and labor market tightness. Market reactions have been volatile, with equity declines and rising Treasury yields reflecting uncertainty about the Fed's next moves and the broader economic outlook. Analysts warn that tariff effects and ongoing government deficits may prolong economic weakness, reinforcing stagflation fears and complicating the Fed's policy decisions moving forward.