Are We Creeping Toward Stagflation?

Last week, inflation-adjusted consumer spending fell .5%, the most significant monthly decline in four years. Consumers have become increasingly cautious about spending as they digest higher price shocks, pending tariff consequences, the DOGE job losses, and the trickle-down effect of these developments on different sectors of the economy.

According to one CNBC economist, “Uncertainty is its own tax regarding economic growth.” This comment rings true as consumers prepare for the unknown price and supply effects adding to the current difficulties. Not only are consumers cautious, but corporations have increasingly been conservative when forecasting 2025 revenue expectations.

As the economy slows down to take all this in and prices rise, the daily changes in government policies throw uncertainty across the board for job security and a continued decline in the dollar’s purchasing power. These factors are not just concerning, they are creeping toward Stagflation, an economic condition that is rare but quite a challenging scenario to rebalance. We aren’t at the stagflation point yet, but two of the three parts of this equation are materializing.

Given the risks associated with Stagflation, investors should position themselves to manage that risk. Municipal Bonds, with their potential to provide steady tax-free income and preserve principal in such an environment, can be a reassuring tool for investors.

Investors can better manage their investments by understanding the potential impact of various economic trends. When it comes to Municipal Bond investing, experience counts. Therefore, seeking the right advisor for this asset class is not just important, it’s critical. The DRL Group, with over 30 years of advising clients in all market conditions, can provide the confidence you need. Call us today to discuss how tax-free income can balance your portfolio.