March 18, 2026: Stronger stagflation winds blow due to increasing supply-side shocks. We now have both the internal policy shock of tariffs (or taxes) plus the external oil supply shock due to the completely unplanned-for Strait of Hormuz problem. Increases in unemployment due to slowing economic growth and inflationary pressures are therefore imminent.
A Schwab market update for March 18 goes like this: (Wednesday market open) With a Federal Reserve decision directly ahead and no rate change anticipated, investors mull another hot Producer Price Index (PPI) report and cast a wary eye at crude oil and the Middle East. Headline February PPI spiked 0.7% compared with the 0.3% consensus. Stocks fell after PPI, and crude steadied amid continued Iranian attacks on Gulf states. Wall Street often treads water heading into rate announcements.
The most dire prediction of the approaching stagflationary recession, which is due entirely to the Trump administration, goes like this: Democratic Party strategist James Carville predicted that President Donald Trump’s tenure will end prematurely, stating that Trump is not long for the presidency because “everything that he tries blows up in his face.” In a Politicon video, Carville made a bold forecast about Trump’s political future. Carville stated, “I’m telling you, I think he’s just going to quit next year by this time. I think he’s just going to walk away because the Democrats control the House and the Senate.” Carville characterized Trump’s position as increasingly untenable, saying, “No one’s going to pay attention to him. The fiscal condition of the country is beyond in the ditch. The Iran thing has turned into just a catastrophe of the first order.”
We will gain insight into which problem the Fed sees as worse, because it can either raise interest rates to combat inflation or lower them to combat slowing growth and rising unemployment. Since we have a dual mandate for our Fed, it must, in the context of stagflation, do one or the other, and obviously, it cannot do both.
An often-used definition of a recession is two or more consecutive quarters of negative economic growth. Thus, we are only on the precipice of a recession and looking down, but we have not actually fallen into the gorge.
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