Stagflation Warning

Originally published on Substack. 

​Prices Hit Home

The latest Consumer Price Index report should end the fantasy that inflation is gone. March CPI jumped 0.9 percent in a single month, and the 12-month headline rate rose to 3.3 percent. Core CPI increased 0.2 percent in March and 2.6 percent over the past year. Even by the cleaner measure, inflation is still running above where price stability should be. The Federal Reserve’s long-run inflation target is 2 percent, measured by PCE, not CPI, but the point remains the same: prices are still rising too fast, and families know it.

That matters because families do not live in the “core.” They live in the real world, where gasoline, electricity, rent, groceries, and borrowing costs all hit at once. March’s inflation story was ugly. The energy index surged 10.9 percent in one month, gasoline jumped 21.2 percent, shelter rose another 0.3 percent, and food away from home is up 3.8 percent over the past year. That is not a technical nuisance. That is a direct hit to household budgets.

Inflation always hurts working families first and worst. When prices rise faster than paychecks, people do not need a lecture from Washington about “resilience.” They need relief. Instead, they get shrinking purchasing power, tighter budgets, delayed purchases, and more debt. They feel poorer because bad policy is making them poorer.

Weak Labor Signals

This would be bad enough if the economy were otherwise humming along. But it is not. Inflation moving higher while job growth weakens is the kind of combination that should make every policymaker nervous. That is how stagflation creeps back into the conversation: not all at once, but through a steady mix of higher costs, weaker confidence, and slower growth.

The bigger problem is that Washington keeps feeding the fire instead of putting it out.

The Fed’s Long Shadow
​
Start with the Federal Reserve. The Fed’s total assets were $6.694 trillion as of April 8, according to FRED’s WALCL series.

That is down from the peak, but still enormous by any serious historical standard. Before the excesses that began in 2008, the Fed’s balance sheet was far smaller relative to the economy. By the balance-sheet-to-GDP chart, it is still roughly one-fifth of GDP today, far above the pre-2008 norm of about 6 percent.

That matters because a bloated central bank balance sheet is not neutral. Years of extraordinary intervention distorted asset prices, encouraged misallocation of capital, rewarded leverage, and helped fuel the inflationary pressures Americans are still dealing with. Easy money always looks clever on the way up. Then families get the bill on the way down.

There should be a rule to reverse this. The Fed’s balance sheet should be put on a predictable path back toward roughly 6 percent of GDP over time, absent a true emergency. Emergency tools should not become permanent habits. Monetary policy should not be a standing engine of distortion. Sound money requires rules, restraint, and humility.

Tariffs Raise Costs

Then there is trade policy. Tariffs are taxes on Americans. They raise input costs for producers, increase prices for consumers, and create uncertainty for businesses trying to plan investment and hiring. There is no magic here. Protectionism does not create prosperity. It redistributes pain and calls it patriotism.
​
That is especially damaging at a time like this. When inflation is already too high and growth is already soft, piling more costs onto supply chains is economic malpractice. Businesses do not absorb these costs out of kindness. They pass them through, delay expansion, or cut back elsewhere.

Overspending Adds Fuel

Fiscal policy is no better. Washington has spent years overspending up to $7 trillion per year, subsidizing consumption, picking winners, and pretending deficits do not matter. The result is exactly what basic economics would predict: weaker incentives for productive investment, higher interest costs, and a more fragile growth outlook.

This is where the case for fiscal rules matters. I have long argued for a spending limit based on population growth plus inflation so government grows no faster than the private economy can sustain. Spend above that, and you get what we have now: bloated budgets, more debt, and less room for families and businesses to thrive. Fiscal discipline is not austerity. It is the minimum requirement for sanity.

War and Uncertainty

Add wars and geopolitical instability to this mess and the risks multiply. Conflict disrupts energy markets, rattles supply chains, clouds business expectations, and makes already-high prices even more volatile. At the same time, policy uncertainty from tariffs, deficits, and regulatory swings freezes hiring and investment. Businesses sit on their hands when Washington cannot stop moving the goalposts.

That is how families get squeezed from every direction. Prices rise. Growth weakens. Job prospects soften. Confidence fades. And the people who caused much of the mess ask for even more power to manage it.

Less Government, More Prosperity

None of this should be surprising. Government tried to print prosperity, spend prosperity, and tariff its way to prosperity. It failed. Again.

The answer is less government. That means monetary rules instead of discretion, spending restraint instead of endless deficits, open markets instead of tariffs, and a foreign policy that understands war is costly in both lives and living standards. Families do not need more central planning. They need room to work, save, invest, and build.

I have made this case in my writings for years because the lesson keeps proving true: prosperity comes from free people and free markets, not from Washington trying to micromanage the economy. Inflation is not just a statistic. It is a policy failure with a grocery bill attached.

Closing Thoughts

March’s CPI report is a warning. Inflation is still too high. The Fed is still far from restored normality. Washington’s tariffs, overspending, and war-driven uncertainty are making the outlook worse, not better. If policymakers want to help families, they should stop distorting markets and start shrinking government.

Subscribe to Let People Prosper on Substack and stay engaged. Share this with someone who is tired of paying for Washington’s mistakes, and follow along for more analysis on how we can restore sound money, rein in spending, remove barriers to growth, and let people prosper.
​
Three key takeaways for policymakers

• Restore a monetary rule. Inflation is still above the Fed’s 2 percent target, and the balance sheet remains massively elevated at about $6.7 trillion. The Fed should follow a rules-based path that steadily normalizes its footprint and gets the balance sheet back near its pre-2008 norm relative to GDP of 6%.
• Adopt a fiscal rule. Federal spending should reduced then capped to grow no faster than population plus inflation. That is the surest way to stop chronic overspending, reduce inflationary pressure, and protect taxpayers from government that keeps growing faster than the real economy.
• End cost-raising intervention. Tariffs, subsidies, and war-driven uncertainty raise prices and weaken growth. The better path is simple: less government, freer markets, stronger incentives to produce, and more room for families to prosper.