A growth scare in the economy has accompanied worries over a resurgence in inflation, in turn potentially rekindling an ugly condition that the U.S. has not seen in 50 years.

Fears over “stagflation” have come as President Donald Trump seems determined to slap tariffs on virtually anything that comes into the country at the same time that multiple indicators are pointing to a pullback in activity.

That dual threat of higher prices and slower growth is causing angst among consumers, business leaders and policymakers, not to mention investors who have been dumping stocks and scooping up bonds lately.

“Directionally, it is stagflation,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s higher inflation and weaker economic growth that is the result of policy — tariff policy and immigration policy.”

The phenomenon, not seen since the dark days of hyperinflation and sagging growth in the 1970s and early ’80s, has primarily manifested itself lately in “soft” data such as sentiment surveys and supply manager indexes.

At least among consumers, long-run inflation expectations are at their highest level in almost 30 years while general sentiment is seeing multi-year lows. Consumer spending fell in January by its most in nearly four years, even though income rose sharply, according to a Commerce Department report Friday.

On Monday, the Institute for Supply Manufacturing’s survey of purchase managers showed that factory activity barely expanded in February while new orders fell by the most in nearly five years and prices jumped by the highest monthly margin in more than a year.

Following the ISM report, the Atlanta Federal Reserve’s GDPNow gauge of rolling economic data downgraded its projection for first quarter economic growth to an annualized decrease of 2.8%. If that holds up, it would be the first negative growth number since the first quarter of 2022 and the worst plunge since the Covid shutdown in early 2020.

“Inflation expectations are up. People are nervous and uncertain about growth,” Zandi said. “Directionally, we’re moving toward stagflation, but we’re not going to get anywhere close to the stagflation we had in the ’70s and the ’80s because the Fed won’t allow it.”

Indeed, markets are pricing in a greater chance the Fed will start cutting interest rates in June and could lop three-quarters of a percentage point off its key borrowing rate this year as a way to head off any economic slowdown.

But Zandi thinks the Fed reaction might do just the opposite — raise rates to shut down inflation, in the vein of former Chair Paul Volcker, who aggressively hiked in the early ’80s and dragged the economy into recession. “If it looks like true stagflation with slow growth, they will sacrifice the economy,” he said.

Sell-off in stocks

The converging factors are causing waves on Wall Street, where stocks have been been in sell-off mode this month, erasing the gains that were made after Trump won election in November.

Though the Dow Jones Industrial Average fell again Tuesday and is off about 4.5% through the early days of March, the selling hasn’t felt especially rushed and the CBOE Volatility Index, a gauge of market fear, was only around 23 Tuesday afternoon, not much above its long-term average. Markets were well off their session lows in afternoon trading.

“This certainly isn’t the time to hit the panic button,” said Mark Hackett, chief market strategist at Nationwide. “At this point, I’m still in the camp that this is a healthy resetting of expectations.”

However, it’s not just stocks that are showing signs of fear.

Treasury yields have been tumbling in recent days after surging since September. The benchmark 10-year note yield has fallen to about 4.2%, off about half a percentage point from its January peak and below the 3-month note, a reliable recession indicator going back to World War II called an inverted yield curve. Yields move opposite to price, so falling yields indicate greater investor appetite for fixed income securities.

Hackett said he fears a “vicious circle” of activity created by the swooning sentiment indicators that could turn into a full-blown crisis. Economists and business executives see the tariffs hitting prices for food, vehicles, electricity and an assortment of other items.

Stagflation “certainly is something to pay attention to now, more than it’s been in a while,” he said. “We have to watch. This is such a collapse in sentiment and such a change in the way people are viewing things and the level of emotion is so elevated right now that it will start impacting behavior.”

White House sees ‘the greatest America’

For their part, White House officials are maintaining that short-term pain will be dwarfed by the long-term benefits tariffs will bring. Trump has touted the duties as way to create a stronger manufacturing base in the U.S., which is primarily a service-based economy.

Commerce Secretary Howard Lutnick acknowledged in a CNBC interview Tuesday that there “may well be short-term price movements. But in the long term, it’s going to be completely different.” Market-based inflation expectations are in line with that sentiment. One metric, which measures the spread between nominal 5-year Treasury yields against inflation, is at its lowest level in nearly two years.

“This is going to be the greatest America. We’ll have a balanced budget. Interest rates will come smashing down, and I mean 100 basis points, 150 basis points lower,” Lutnick added. “This president is going to deliver all of those things and drive manufacturing here.”

Likewise, Treasury Secretary Scott Bessent told Fox News that “there’s going to be a transition period” and said the administration’s focus is on Main Street more than Wall Street.

“Wall Street’s done great. Wall Street can continue to do fine, but we have a focus on small business and the consumer,” he said. ” We are going to rebalance the economy, we are going to bring manufacturing jobs home.”

Important clues on where the economy is headed should come from Friday’s nonfarm payrolls report. If the jobs count is good, it could reinforce the notion that the hard data has remained solid even as sentiment has shifted.

But if the report shows that the labor market is softening while wages are holding higher, that could add to the stagflation chatter.

“We have to be observant. There’s the potential that the stagflation term just by itself, by talking about it, can manifest some of it,” said Hackett, the Nationwide strategist. “I’m not in the we-are-in-a-period-of-stagnation camp, but that is the disaster scenario.”