by Neil Irwin
Axios
Just nine days ago, we wrote about the signs pointing to an imminent stagflation. It’s time to revise that outlook; now, a plain ol’ recession looks more likely.
The big picture: The shifts in global markets since President Trump’s tariff announcement last Wednesday carry the unmistakable signs of a looming downdraft in economic activity that would bring inflation, interest rates, and job market conditions with it.
— In effect, there has been a push-and-pull over whether the inflationary impact of higher import taxes will prove more powerful than the disinflationary impact on economic activity.
— When Trump announced tariffs far larger than Wall Street was expecting — and followed up with rhetoric suggesting few off-ramps that might lead to their reversal anytime soon — the smart money tilted toward that recessionary/disinflationary outlook.
State of play: Despite higher import taxes that economists widely believe will push consumer prices up in the near term, bond markets are pricing in medium-term inflation that is lower than anticipated a week ago.