Economic stagnation and persistent inflation are converging to create a stagflationary environment, with markets increasingly responding to the Federal Reserve’s constrained policy options amid shifting political dynamics, warns Nigel Green, CEO of deVere Group.
The financial advisory firm’s chief argues that recent data reveals an economy caught between weakening growth and stubborn price pressures, complicating the central bank’s path forward.
March’s Personal Consumption Expenditures (PCE) index showed headline inflation easing to 2.3% annually, down from 2.7% in February. However, core inflation excluding volatile food and energy costs held firm at 2.6%, signaling entrenched price pressures. While falling energy prices contributed to the softer headline figure, food costs surged 0.5%, the sharpest monthly rise in months, intensifying strain on households.
“The Fed is boxed in,” Green said. “Price pressures remain elevated, yet growth is faltering. Rate cuts are off the table for now, and the central bank’s traditional levers are losing effectiveness.”
Consumer spending rebounded to 0.7% in March after a meager 0.1% gain in February, but Green attributes this to “pressure spending” driven by tariff anxiety and short-term cost surges rather than economic confidence. “This isn’t organic strength it’s households bracing for higher prices,” he noted.
Compounding the challenge is former President Donald Trump’s renewed influence on fiscal policy. Proposals for expansive tariffs, increased government spending, and critiques of Fed independence threaten to exacerbate inflationary trends. “Trump’s agenda is inherently inflationary,” Green explained. “Trade barriers and fiscal expansion could force the Fed into a defensive posture, reacting to political moves rather than steering the economy.”
The result, according to Green, is a stagflationary regime where slow growth and persistent inflation upend traditional investment strategies. Bonds lose their hedging appeal, equities face valuation pressures, and currency volatility rises. He advises investors to prioritize global diversification, real assets like commodities, and sectors resilient to inflation, such as infrastructure and healthcare.
The Fed’s delayed response contrasts with prior cycles, where central bank actions dominated market narratives. “Monetary authority is no longer the dominant force,” Green said. “Political decisions, particularly from the White House, are setting the tone.”
Historical parallels to the 1970s stagflation era loom, though today’s economy benefits from more flexible labor markets and technological advancements. Still, the Fed’s current gridlock underscores the complexity of balancing inflation control with growth preservation, a task made harder by evolving political risks.
As policymakers grapple with these crosscurrents, Green’s analysis highlights a broader shift: central banks worldwide must increasingly navigate fiscal and political headwinds, testing their ability to maintain economic stability in an era of heightened uncertainty.
