Weary consumers, already grappling with high prices, now face an added potential risk: stagflation.

Stagflation — an economic term used to describe a combination of rising inflation, slower economic growth and high unemployment — may be on the horizon, according to economists.

“The Trump White House tariff policy has certainly increased the risk of both higher inflation and lower growth,” said Brett House, professor of professional practice in economics at Columbia Business School.

The Trump administration’s tariff policies are fueling stagflation conditions, according to the latest CNBC Rapid Update, which averages forecasts from 14 economists.

“It’s a more pronounced risk than at any time over the past 40 years,” said Greg Daco, chief economist at EY Parthenon and vice president at the National Association for Business Economics.

Uncertainty is already showing up in consumer confidence, said Diane Swonk, chief economist at KPMG.

“We’re seeing that kind of whiff of stagflation, where people are less secure about their jobs and they’re more worried about inflation down the road,” Swonk said.

The 1970s-era stagflation is often associated with major oil price increases, leading to shortages and long lines at gas stations. However, some economists have argued it was actually monetary fluctuations that prompted stagflation.

The conditions prompted then Federal Reserve Chairman Paul Volcker to implement a dramatic tightening of monetary policy in the late ’70s and ’80s known as the “Volcker shock.” While inflation did come down as the Fed pushed interest rates higher, the central bank’s moves also prompted a severe recession — often defined as two consecutive quarters of negative gross domestic product growth — and higher than 10% unemployment.

Stagflation would not happen in the same way today, according to Dan Skelly, head of Morgan Stanley Wealth Management market research.

The U.S. is no longer at the whim of foreign oil, Skelly said. Moreover, unions, which prompted wage price spirals back then, are no longer as big a portion of the private work force today, he said.

The uncertainty around tariffs may affect corporate and consumer confidence, which would prompt spending and investment to slow, Skelly said. The likelihood of the growth slowdown part of stagflation is fairly high, he said.

However, Skelly said Morgan Stanley expects to see more effects in the stock market through earnings than in the economy.

Many firms are revising their economic forecasts, including the possibility of a recession, as a result of Trump administration policies, according to a new survey by Chief Executive.

Stagflation is not necessarily accompanied by a formal recession; rather, it can be slowing or stagnant growth, House said.

KPMG’s current forecast expects a shallow recession, with inflation peaking at the end of the third quarter.

“It’s not even what we saw during the pandemic,” Swonk said of the inflation spike. But it would be enough for employment to slow and to prompt a mild bout of stagflation, she said.

Stagflation, if it happens, would be the “worst of both worlds,” with higher unemployment and costs, Daco said.

“That represents a significant hardship for many families and businesses across the country,” he said.

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Instead of overstretching their budgets with purchases, consumers should prioritize paying down high-interest credit card debt and building up an emergency fund. Focusing on high-interest debt first can save money in the long run, and having an emergency fund provides a financial safety net.

Experts generally recommend having at least six months’ expenses set aside. While it can be difficult to sock away extra money amid higher prices, the good news is higher interest rates are still providing inflation-beating returns on cash through online high-yield savings accounts that are FDIC-insured, Foster said.

For those who have been keeping cash on the sidelines rather than investing, now is the time to start allocating toward equities and riskier assets, considering the recent market drop, Skelly said.

“Don’t do it all in one day, but start winding down some of that cash, now that values are more fair than they were a month or two ago,” Skelly said.

Investors who have reaped big profits may want to rebalance to more neutral positions now, he said.

In 2022, one survey found 80% of economists said stagflation was a long-term risk.

But it was avoided at that time with a mix of strong economic growth, disinflation and a robust labor market encouraged by the Federal Reserve, Daco said.

Much of the risks popping up in today’s economic forecasts are the result of White House policies, economists say.

The Trump administration could reduce stagflation risks, Daco said, by reducing policy uncertainty, easing immigration restrictions that will reduce the labor supply, and not implementing tariffs on major trading partners.

House said the U.S. entered 2025 with a “well-performing economy,” which he said has been threatened by the Trump administration’s recent policy changes. It is up to the administration to unwind those policies and “prevent stagflation from occurring,” he said.

The White House did not respond to a request for comment from CNBC.

The IRS’ free tax filing program is in jeopardy as the agency faces continued cuts from the Trump administration.

After a limited pilot launch in 2024, the program, known as Direct File, expanded to more than 30 million taxpayers across 25 states for the 2025 filing season.   

Funded under the Inflation Reduction Act in 2022, the program has been heavily scrutinized by Republicans, who have criticized the cost and participation rate. Over the past year, Republican lawmakers from both chambers have introduced legislation to halt the IRS’ free filing program.

Now, some reports say Direct File could be at risk. Meanwhile, no decision has been made yet about the program’s future, according to a White House administration official. 

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During his Senate confirmation hearing in January, Treasury Secretary Scott Bessent committed to keeping Direct File active during the 2025 filing season without commenting on future years.  

“I will consult and study the program and understand it better and make sure it works to serve the IRS’ three goals of collections, customer service and privacy,” Bessent told the Senate Finance Committee at the hearing. 

However, the future of the free tax filing program remains unclear.

As of April 17, the Direct File website said the program would be open until Oct. 15, which is the deadline for taxpayers who filed for a federal tax extension.

Many taxpayers can also file for free via another program known as IRS Free File, which is a public-private partnership between the IRS and the Free File Alliance, a nonprofit coalition of tax software companies.

The IRS in May 2024 extended the Free File program through 2029.

“No one should have to pay huge fees just to file their taxes,” Senate Finance Committee Ranking Member Ron Wyden, D-Ore., said in a statement on Wednesday.

Wyden described the program as “a massive success, saving taxpayers millions in fees, saving them time and cutting out an unnecessary middleman.”

In January, more than 130 Democrats, led by Sens. Elizabeth Warren, D-Mass., and Chris Coons, D-Del., voiced support for Direct File.

However, opponents have criticized the program’s participation rate and cost.

During the 2024 pilot, some 423,450 taxpayers created or signed in to a Direct File account. Roughly one-third of those taxpayers, about 141,000 filers, submitted a return through Direct File, according to a March report from the Treasury Inspector General for Tax Administration.

Those figures represent a mid-season 2024 launch in 12 states for only simple returns. It’s unclear how many taxpayers used Direct File through the April 15 deadline.

The cost for Direct File through the pilot was $24.6 million, the IRS reported in May 2024. Direct File operational costs were an extra $2.4 million, according to the agency.

Some investors accustomed to the dominance of U.S. stocks versus the rest of the world are making a stunning pivot toward international equities, fearing U.S. assets may have taken on more risk amid escalating trade tensions initiated by President Donald Trump.

The S&P 500 sank more than 6% since Trump first announced his tariff plan, while the Dow and Nasdaq have each tumbled more than 7%.

There was a strong argument to dial back U.S. stock holdings and adopt a more global portfolio even before the recent volatility, said Christine Benz, director of personal finance and retirement planning for Morningstar.

“But I think the case for international diversification is even greater 1744909145, given recent developments,” she said.

Jacob Manoukian, head of U.S. investment strategy at J.P. Morgan Private Bank, offered a similar assessment. “Global diversification seems like a prudent strategy,” he wrote in a research note on Monday.

The S&P 500 index had an average annual return of 11.9% from mid-2008 through 2024, beating returns of developed countries by a “sizable margin,” according to analysts at J.P. Morgan Private Bank.

The MSCI EAFE index — which tracks stock returns in developed markets outside of the U.S. and Canada — was up 3.6% per year over the same period, on average, they wrote.

However, the story is different this year, experts say.

“In a surprising twist, the U.S. equity market has just offered investors a timely reminder about why diversification matters,” the analysts at J.P. Morgan Private Bank wrote. “Although U.S. outperformance has been a familiar feature of global equity markets since mid-2008, change is possible.”

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The Trump administration’s tariff policy and an escalating trade war with China have raised concerns about the growth of the U.S. economy.

U.S. markets have been under pressure ever since the White House first announced country-specific tariffs on April 2. Trump imposed tariffs on many nations, including a 145% levy on imports from China.

As of Thursday morning, the S&P 500 was down roughly 10% year-to-date, while the Nasdaq Composite has pulled back more than 16% in 2025. The Dow Jones Industrial Average had lost nearly 8%. Alternatively, the EAFE was up about 7%.

At the same time, rising global trade tensions have taken a toll on the bond market, threatening to shake the confidence of holders of U.S. debt. The U.S. dollar has also weakened, nearing a one-year low as of Thursday morning.

It’s unusual for U.S. stocks, bonds and the dollar to fall at the same time, analysts said.

Former Treasury Secretary Janet Yellen said Monday that President Donald Trump’s tariffs have made it more difficult for Americans to find comfort in the U.S. financial system.

“This is really creating an environment in which households and businesses feel paralyzed by the uncertainty about what’s going to happen,” Yellen told CNBC during a “Squawk Box” interview. “It makes planning almost impossible.”

Since 1975, U.S. stock returns have outperformed those of international stocks for stretches of about eight years, on average, according to an analysis by Hartford Funds through 2024. Then, U.S. stocks cede the mantle to international stocks, it said.

Based on history, non-U.S. equities are overdue to reclaim the top spot: The U.S. is currently 13.8 years into the current cycle of stock outperformance, according to the Hartford Funds analysis.

U.S. markets had already showed weakness heading into the year amid concerns about the health of the economy grew and as “air came out the valuations of ‘big-tech’ stocks,” according to Capital Economics analysts.

“In that respect, ‘Liberation Day’ — which accentuated these moves — only added fuel to a fire that had already been burning,” they wrote.

A good starting point for investors would be to mirror a global stock fund like the Vanguard Total World Stock Index Fund ETF (VT), said Benz of Morningstar. That fund holds about 63% of assets in U.S. stocks and 37% in non-U.S. stocks.

It may make sense to pare back exposure to international stocks as individual investors approach retirement, she said, to reduce the volatility that comes from fluctuations in foreign exchange rates.

“Part of our core models for clients have always had international exposure, it’s traditionally part of any risk-adjusted portfolio,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York, of the conversations he is having with his clients.

Even though those asset classes didn’t perform as well over the last few years, “they’ve done a pretty good job here of helping reduce the brunt of this tariff volatility,” said Boneparth, a member of the CNBC Financial Advisor Council.

Still, Boneparth cautions investors against making any sudden moves to add non-U.S. equities to their portfolios.

“If you are thinking about making changes now, be careful,” he said. “Do you lock in losses to U.S. stocks to gain international exposure? You want to tread carefully here,” he said. “Are you chasing or timing? You usually don’t want to do those things.”

However, this may be a good time to check your investments to make sure you are still allocated properly and rebalance as needed, he added. “By rebalancing, you can rotate out of less risky assets into equities, strategically buying the dip.”

There have been very few times in history when clients asked about increasing their investments overseas, “which is happening now,” said CFP Barry Glassman, the founder and president of Glassman Wealth Services.

“Given that both stocks and currency are outperforming U.S. indices it’s no wonder there is greater interest in foreign stocks today,” said Glassman, who is also a member of the CNBC Advisor Council.

“Even in the past, when U.S. stocks have fallen, the dollar’s gains helped to offset a portion of the losses. In the past two weeks, that has not been the case,” he said.

Glassman said he maintains a two-thirds to one-third ratio of U.S. stocks to foreign stock funds in the portfolios he manages.

“We are not making any moves now,” he said. “The moves for us were made over time to maintain what we consider the appropriate foreign allocation.”