The US Treasury has issued a stark warning that the economy may be sliding into stagflation, after inflation surged to a three-year high under Donald Trump's second term. Sources inside the department confirm that internal forecasts now show a toxic mix of rising prices and slowing growth, a scenario not seen since the 1970s.
Consumer prices jumped 4.2% year-on-year in March, the highest since early 2023, driven by Trump's tariffs on Chinese goods and a tightening labour market. The data, released by the Bureau of Labour Statistics, sent shockwaves through Washington. One Treasury official, speaking on condition of anonymity, told me: 'We're looking at a perfect storm. The president's trade war is pushing up costs, and the tax cuts aren't stimulating supply fast enough. Real wages are falling.'
The White House has tried to spin the numbers as 'transitory,' but the Treasury's own briefing documents, obtained by this newspaper, reveal a more pessimistic outlook. They warn that 'headline inflation may remain elevated for several quarters,' with a 'significant risk' that the economy will enter a period of stagnant growth. The term 'stagflation' appears twice in the memo, a word that haunts every economist over 50.
For the average American, this means higher prices at the petrol pump and grocery store. The cost of a gallon of milk has risen 15% year-on-year, according to USDA data. And while unemployment remains below 4%, wage growth has stalled at 2.1%, effectively a pay cut when adjusted for inflation.
Trump's supporters on Capitol Hill are pushing back. Senator Lindsey Graham called the Treasury warning 'alarmist' and insisted the economy is 'booming.' But even the Federal Reserve is sounding cautious. Minutes from the last FOMC meeting, released last week, show a 'vigorous debate' about whether to raise rates again, a move that could tip the economy into recession.
The irony is not lost on critics. Trump campaigned on making America great again, but his policies have resurrected the worst economic spectre of the Carter era. The Treasury warning is a political time bomb. If stagflation takes hold, it will shred the president's 'jobs, jobs, jobs' narrative. And I've seen this movie before: when the numbers go south, the White House starts looking for scapegoats. Expect the Fed and China to be in the crosshairs.
But here's what the suits don't tell you: this crisis is self-inflicted. The tariffs are a tax on consumers. The deregulation has boosted corporate profits, not worker pay. And the deficit is ballooning like a hot-air balloon over a factory fire. The Treasury knows it. They just can't say it out loud.
I've been following the money for 20 years, and this feels like 2008 all over again. Except this time, the crash is coming in slow motion. The question is not if the economy will break. It's when. And who will be left holding the bag.
