Stagflation is no longer just a rhetorical device to describe the U.S. economy in 2025.
Real signs of its toxic mix of stagnant growth and stubborn inflation are emerging across both the labor market and consumer prices, painting a grim near-term outlook.
According to Apollo chief economist Torsten Slok, the U.S. hiring rate, a number of hires as a percentage of total employment, has fallen to recessionary levels.
A recent Apollo chart comparing the quits rate and hiring rate shows that hiring has plunged to levels last seen during the 2020 pandemic crash, and is now approaching lows from the Global Financial Crisis.
With slower job growth and rising unemployment, Slok warned that the labor market is nearing a virtual standstill, “where workers are not getting hired or changing jobs.”
At the same time, inflation remains stubbornly high. A separate Apollo analysis found that 60% of the CPI basket is currently rising at an annualized rate above 3%, well above the Federal Reserve’s 2% target.
While that marks an improvement from recent months, when 72% of CPI components ran above 3%, the persistence underscores how broad-based inflation remains.
“Is a second inflation mountain emerging?” Slok asked, referencing the first inflation surge that began in 2021 and peaked in mid-2022 with headline CPI at 9.1%.
Together, the data of higher inflation and slower growth strengthen the case that the U.S. is now grappling with stagflation, a scenario the Fed may find difficult to reverse without triggering deeper economic pain.
Fed targets the ‘stag’ before the ‘flation’
Although central bankers have yet to fully slay the inflation dragon, the Federal Reserve has shifted its focus toward the other side of its dual mandate — stable employment — after lowering interest rates by 25 basis points last month.
Markets now widely expect additional cuts in October and December, driven by mounting concerns over rising unemployment and signs of a cooling labor market, according to Fed fund futures.
The Fed’s recent decision has confounded economists, who say the September FOMC meeting was riddled with mixed messages.
As Bloomberg economist Anna Wong observed, policymakers simultaneously projected lower unemployment by 2026 while warning that “downside risks to employment have increased.”
A recent InvestorsObserver report suggested the contradiction may mirror the economy itself, where AI-driven productivity gains are boosting overall growth but reducing demand for entry-level roles, particularly among younger workers.
The result is an economy that looks strong on the surface, yet increasingly uneven beneath the hood, complicating the Fed’s efforts to balance inflation control with job stability.
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