Edward Lotterman
Candidate Donald Trump dodged a physical bullet during an attempted assassination in Pennsylvania last Aug. 13.
On Wednesday, President Trump seemingly dodged an economic one. That’s when the Bureau of Labor Statistics released unexpectedly low numbers for February’s Consumer Price Index, giving respite to an administration increasingly beset by problems of its own making, economic and otherwise.
The respite may be temporary, however. There are other economic bullets in the air that might harm a president who seems hell-bent on creating not only uncertainty, but chaos. With households, businesses and financial markets “nervous as a long-tailed cat in a roomful of rocking chairs,” and acting that way, Trump’s administration is in danger.
Trump, and the country, cannot afford the situation that Presidents Gerald Ford and Jimmy Carter found themselves in a half-century ago, specifically “stagflation,” where two or more key indicators are bad — in this case high inflation and poor economic growth — and usual measures to correct them contradict each other. That’s because the two situations are not supposed to exist at the same time. We are not far from this now. Adverse developments may have already taken place.
The problem with key economic indicators such as these is the lag between changes in the economy — say Trump’s tariffs — and when measures of such changes can be made and announced. Consider that the good February CPI numbers only measure a fraction of the impact of the tariffs. They were taken less than a month after Trump’s inauguration and provide only a thin link between him and prices. Markets remain skeptical and skittish.
Changes in output, employment and prices for this March and the first quarter already are largely determined. Yet their direction and magnitude won’t be announced for weeks or even months. The bullets are in flight, but no one knows yet whether the American economy, or their president, will dodge them. Unfortunately, odds are adverse for both.
Now let’s evaluate the metrics announced last week, and consider what’s coming later.
The February CPI numbers certainly were favorable. In the misleading year-over-year comparison on which U.S. media rely, consumer prices in February 2025, were up 2.81% from a year ago. That is down slightly from 3.0% in January and near the figures in December and November. Moreover, if one takes the January-to-February change and calculates the annual rate if these continue for 11 more months, inflation would be even lower at 2.62%. All good.
Yet one month’s CPI change is not a reliable indicator of ongoing changes in general prices. A one-month change can be as treacherous as a 12-month comparison.
To be safe, one should take multiple recent intervals and compute the annualized rate. The December to January rate annualizes to 5.75%, that from November to January at 5.11%, from October to January at 4.54%, September to January at 4.09% and from July at 3.55%. All these were well above the 2.81% 12-month-earlier comparison touted in the press.
See what’s happening here? These annualized rates incrementally rise month to month. This shows evidence of inflation accelerating. So while a moderate month may be welcome news to consumers, the administration and Wall Street, further evaluation bodes a different trend.
The BLS released its Employment Situation report days earlier on Friday, March 7. It showed that the unemployment rate was 4.1%, in the same groove since last May. A net 151,000 jobs were added, up slightly from January, well below November and December, but close to the average for the last 12 months. So, like the CPI, it also was reassuring.
Forecasting how not only prices, but also output, employment and financial market levels will trend is highly uncertain, to say the least. The following number-filled bullets affecting them are already in the air or ready to be fired:
• The Bureau of Economic Analysis in the Department of Commerce compiles the Personal Consumption Expenditures index. It measures about what the CPI does, but with a newer methodology. For technical reasons, the Federal Reserve prefers it to the CPI for influencing policy.
The PCE for February will be released on March 28. It and the CPI track very closely over the medium- and long-term, but can vary markedly on an occasional monthly basis. If its January-to-February change happens to be markedly higher than the CPI, expect capital markets to react like a kicked anthill. If the same or lower, expect sighs of relief in the West Wing and on Wall Street. The PCE report also carries estimates of “Personal Income, Outlays and Savings” that add useful information.
• Output of goods and services, or GDP, is the most vital variable for an economy as a whole. However, tabulating it is laborious. The BEA handles this, but only quarterly rather than monthly as for price and labor market numbers.
For the January-to-March first quarter, an “Advance Estimate” will be released on April 30, a full month after the quarter ends. Then expect a “Second Estimate” on May 29 and a “Third Estimate” on June 26. By then, second-quarter bullets will have been fired.
The shingling of these reports is due strictly to the fact that some output data is available in near-real time, but other numbers come from state and local government sources, industry associations and so forth. It’s seen as useful to give a set of indicators as early as possible rather than in a potential blockbuster many months later. Additions and corrections improve the second and third iterations. Unfortunately, such fleshing out always brings charges of political manipulation from the uninformed or paranoid.
Why does this all matter so much? Because what we know now can allow us to anticipate what is coming. If you know where this slow-motion bullet is aimed, you can better move out of the way.
It is essential not only for Trump and Elon Musk, but also for all U.S. households, that we not fall into stagflation. Presidents Ford and Carter faced such simultaneous slow or negative growth of employment and output at the same time as general price levels rose. Stagnation plus inflation.
Prevailing economic thought back then was Keynesian. The Federal Reserve should raise the monetary supply through lower interest rates to counter falling output and rising unemployment. Do the opposite to counter inflation. But the Fed can’t raise and lower rates at the same time.
Congress and the president similarly should juggle taxes and spending. Decrease taxes and increase spending to cure a recession, running a budget deficit if needed. Increase taxes and decrease spending to end inflation. The resulting budget surplus would offset the deficits incurred at the other end of the cycle. A nice fantasy that didn’t work.
Experience with such policies from 1965 to 1990 killed naïve Keynesianism among academics. “Borrow and spend” fiscal policies adopted in the Reagan years produced constant deficits and rising national debt, with only temporary respite via small surpluses in the last four Clinton years. But the exogenous blow of 9/11 and the debacle of the collateralized mortgage bubble popping in 2008 created an image of the Federal Reserve as the entity that could and should cure all economic ills. This ignored the possibility of stagflation again rearing its ugly head. Consumer inflation as we measure it remained low.
Recessions followed 9/11, the 2008 financial market debacle and COVID. And the inflation that followed the COVID years and recovery still lingers. Growth returned in all cases, even though the GDP growth rate so far in this millennium is only two-thirds that of the last four decades of the 20th century.
This is not automatic. Moreover, the fundamental economics have not changed since the 1970s. A central bank like the Fed cannot alone counter recession and inflation at the same time. More importantly, the 1965-85 period taught us that attempts at Keynesian micromanagement are not only futile, but counterproductive. Alternate pressing of the gas and brake pedals doesn’t cure inflation or recession. It makes them worse.
Two final notes. The Fed increased the money supply enormously in the 30 months after the first COVID case in 2020. That money still overhangs the economy and is headed up again. Secondly, uncertainty inhibits investment, innovation and growth. And uncertainty is intangible. It cannot be measured by data points like the CPI and PCE. It can, however, be reflected in market index corrections like we saw last week.
Trump not only creates uncertainty, he is a chaos machine. His morning rants and arbitrary policies only harm the economy. But those are topics for the future.
Real World Economics: U.S. heath care model provides a teaching moment
Real World Economics: Playing chicken with egg prices
Real World Economics: Shaky politics make for a shaky economy
Real World Economics: Contemplating the interconnectivity of things and ideas
Real World Economics: The Fed cannot save our wayward economy
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
