By Martin Baccardax
Superstitions are funny. Actors won't say "Macbeth" in a theater, baseball players won't talk to a pitcher when he's throwing a no-hitter, and White House staff won't say "recession" when the economy turns sour. And no one ever wants to even whisper the word " stagflation," which got a four-pronged boost this past week.
Stagflation refers to the condition of stalling economic growth coupled with rising prices. No one is predicting the same type that bedeviled the economy during the 1970s, but the signs of a problem are there all the same.
The Bureau of Labor Statistics delivered the "stag" part of the equation when it posted disappointing employment data for the month of February. The report showed a loss of 92,000 jobs, while the unemployment rate ticked up to 4.4%. Worse still, the economy hasn't added any new jobs since last April's Liberation Day.
Oil prices are providing the "flation." Brent crude, the global benchmark, traded above $90 a barrel for the first time since April 2024 on Friday as the military activities in the Gulf region continued to expand and shipping traffic in the Strait of Hormuz ground to a halt. It didn't help that Kuwait said it might stop production because it is running out of storage. President Donald Trump, however, shows no signs of backing down -- he demanded "unconditional" surrender from Iran in a social-media post.
The jobs report was a "tough miss," Chicago Federal Reserve President Austan Goolsbee told Bloomberg TV on Friday, but suggested the surge in oil prices might be an even larger concern. "As with any supply-side shock, it can lead you in a stagflationary direction, with the inflation side of the mandate getting worse just as the employment side is getting worse, and that's always the worst-case scenario for a central bank," he said.
Even some of Wall Street's most bullish strategists are starting to worry. "The longer the war lasts, the more likely it is that the oil price shock results in stagflation," said Ed Yardeni, founder and president of Yardeni Research. "The Fed would be frozen as the risks of higher inflation and higher unemployment both increase."
The combination of higher oil prices and a weak job market hammered stocks and bonds and lifted the Cboe Volatility Index, or VIX, to the highest levels in nearly a year. The S&P 500 index is now down 1.9% for the week and trading near its lowest levels since mid-December. The Nasdaq Composite has given back 0.9%, and the Dow Jones Industrial Average has slumped 3.4%.
The Trump administration is, um, sticking to its guns on the economy. White House Economic Advisor Kevin Hassett told CNBC on Friday that he still sees full-year GDP growth in the region of 4%. The current consensus on Wall Street is for a figure closer to 2.2%.
But both forecasts could prove optimistic in a "no hire" labor market combined with a prolonged energy price shock. And the problem could be exacerbated by some of the Trump administration's other policy goals. "The combination of trade uncertainty and a lack of population growth points toward a weaker economy at the same time energy prices spike," said David Russell, global head of market strategy at TradeStation.
Getting the market back on track won't be easy. Earnings season is effectively behind us, so fundamental drivers are likely to be few and far between. The Fed meets in two weeks, but a rate cut isn't expected, and it's unclear whether one would even soothe the market, given the inflation fears. Nvidia is hosting a global AI event in San Jose in two weeks -- and it will need to deliver some very good news to have a positive impact.
Meanwhile, the blows are likely to keep coming. The market has absorbed more than its fair share without capitulating. Stagflation, however, might prove to be the knockout punch.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 06, 2026 12:36 ET (17:36 GMT)
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