CPI inflation has come in at three percent, and there are signs of vulnerability in labor markets, as I discuss in my latest Bloomberg column:

What about unemployment? There is a general consensus that the labor market has stayed broadly stable, but hiring is slowing down and people are less likely to quit their jobs. The overall situation appears more vulnerable. Meanwhile, the global geopolitical order is fraying, and the current policy uncertainty may damage the prospects for domestic investment. While I am optimistic about the economic prospects for artificial intelligence, progress could be bumpy rather than smooth.

If you accept the notion that inflation is more likely to rise than fall, and that the labor market is more likely to worsen than improve, then the chances for a modest stagflation are reasonably high.

I believe also that the rate-cutting decision of December 2024 likely was a mistake.

Keep reading this article on Marginal Revolution.