The Specter of Stagflation: Noise or Near-Term Risk? 

Published August 29, 2025 –  By Paul Beland, Global Head of Research – Wealth Management 

U.S. inflation remains stubborn. Growth is cooling. Employment is wobbling. And financial advisors are navigating a uniquely complex macroeconomic environment, one where the term stagflation has re-emerged with serious implications. 

While the dreaded trifecta of high inflation, weak growth, and high unemployment hasn’t fully materialized, warning signs are building. From Jerome Powell’s recent Jackson Hole tone shift to tariff-fueled inflation risks and political pressure on the Federal Reserve, CFRA’s latest macro research outlines critical developments that wealth managers must watch closely. 

In this blog, we’ll explore several key macro signals—from weakening job trends to international equity implications and why advisors should brace for elevated volatility across asset classes. 

Inflation Is Cooling But Still Sticky 

Despite the post-COVID monetary tightening cycle, inflation remains above the Federal Reserve’s 2% target. Core PCE inflation has trended downward but remains elevated due to fiscal stimulus, tariff pressures, and lingering supply chain distortions. 

While advisors may have hoped for a textbook soft landing, inflation’s downward path has stalled. With new tariffs potentially adding 3% to consumer goods and up to 10% to investment goods in near-term price pressures, the inflation puzzle has become more complex. 

Growth Slowing, But Not Collapsing 

U.S. real GDP growth is expected to hover around 1.8% in 2025 and 2.0% in 2026–2027, according to CFRA forecasts. This moderate but stable growth outlook suggests we are not yet in stagflation territory but uncertainty abounds. 

Consumer sentiment has deteriorated, small business investment has slowed, and large corporations remain cautious amid trade policy headwinds. Wealth advisors should monitor the rising probability of job losses – a key indicator that could quickly tip the balance. 

Why Jerome Powell’s Jackson Remarks Matter 

Fed Chair Powell’s recent statements signaled a potential September rate cut, prompting speculation about a pivot. But this pivot isn’t necessarily driven by market-friendly optimism. 

Instead, the Fed faces a policy conundrum: cooling employment data is pushing against sticky inflation. With weekly jobless claims rising and non-farm payroll growth slowing to 85K/month in 2025 (vs. 168K in 2024), the Fed is being forced to rebalance its dual mandate—without sacrificing inflation control. 

Moreover, Powell’s comments come amid growing political scrutiny of the Fed’s independence, threatening credibility and potentially weakening the U.S. dollar. 

Download the full report to see CFRA’s forecast for the Fed Funds rate and interest rate policy path » 

The Job Market Has Peaked 

Unemployment remains low at 4.2%, but the trend is turning. Continuing unemployment claims are climbing. And the pace of job creation is decelerating sharply: 

• 2023 monthly avg. job gains: 251,000 
• 2024 monthly avg.: 168,000 
• 2025 YTD avg.: 85,000 

That’s a clear slowdown, one that hasn’t triggered a full recession signal yet but represents a cooling labor market with downside risk.

What It Means for Financial Advisors 

For financial advisors, this cooling trend means greater scrutiny on: 

1. Portfolio diversification across sectors and regions 
2. Fixed income positioning as yields remain elevated 
3. Equity valuation pressures and margin contraction 

CFRA’s full report highlights tactical shifts advisors may consider including lowering bond exposure and increasing international equities. 

The Inflation Trade: Not Quite Over 

The Tariff Effect 

CFRA’s macro research estimates that if a 30% tariff is passed through to finished goods: 

• Investment goods prices could rise ~10% 
• Consumer goods prices could rise ~3% 

But advisors shouldn’t panic just yet—many consumer-facing companies are absorbing the cost rather than passing it to buyers. Still, tariffs are a source of one-time inflation bumps, which add complexity to the Fed’s decision-making calculus.

What Clients May Be Asking You 

Your clients are reading headlines about inflation, dollar volatility, and rate cuts. They may be asking: 

• “Should we stay in cash or reinvest?” 
• “Is now the time to move internationally?” 
• “Will interest rates drop soon?” 

What’s Next for the U.S. Dollar? 

One of the lesser-discussed risks in financial media right now is the pressure on the U.S. dollar from both monetary and political fronts. 

• The U.S. Dollar Index (DXY) is down nearly 10% year-to-date. 
• Long-term interest rates remain volatile amid inflation risks. 
• Political challenges to Federal Reserve independence could weaken global confidence in the dollar’s reserve currency status. 

For global allocators, this opens opportunities in European and APAC equities where valuations are more attractive and central bank policies are more supportive. 

CFRA’s Macro Allocation Guidance for 2025–2026 

CFRA has made several allocation adjustments based on the evolving macro landscape: 

This reflects a preference for equities (especially outside the U.S.), shorter-duration fixed income, and maintaining liquidity. 

Access full portfolio construction insights in the complete CFRA macro report » 

Key Takeaways for Financial Advisors 

• Inflation is still elevated, and new tariffs could keep it sticky through 2026. 
• Growth is slowing, but recession is not base-case. 
• The Fed is likely to cut rates soon, but not aggressively. 
• Dollar weakness and Fed independence risks are underappreciated. 
• Rebalancing portfolios with more global equity exposure may be prudent. 

Read the Full Macro Report: Asset Allocation, Forecasts & More 

CFRA’s Stagflationary Impulses report is a must-read for financial advisors aiming to stay ahead of macro forces driving market volatility. The report provides: 

• Updated U.S. growth and inflation forecasts 
• Tactical asset allocation guidance 
• Fed policy outlook and interest rate forecast 
• Global equity opportunities 
• Strategic implications for portfolio positioning 

Download the full report here to get expert-level insights, charts, and actionable recommendations for 2025 and beyond.