Uncertainty about the economy has been leading the likes of Federal Reserve Chairman Jerome Powell and JPMorgan Chase CEO Jamie Dimon, A78, to raise the specter of stagflation affecting the U.S. Those concerns are driven by worry about both the inflationary impact of tariffs and potential for them to dampen economic activity, among other concerns.

The last period of stagflation in the U.S. occurred in the 1970s and has rarely come up in popular discourse—until recently. To learn more about the economics behind stagflation, Tufts Now spoke with Marcelo Bianconi, Fortune Family Professor and chair of the Department of Economics, and author of Financial Economics, Risk and Information.

What does stagflation mean?

Stagflation occurred in the 1970s in the U.S and worldwide. It was called that because it’s a mixture of stagnation—high unemployment rates, low incomes, low or negative gross domestic product (GDP) growth—and inflation, a higher-than-average rate of price changes. 

If you look at the U.S. data, you can see a clear trend from 1972 to mid-1975 with inflation really going up. At the same time, the unemployment rate was spiking and GDP growth was declining. That was defined by economists at that time as the process of stagflation, which can be very damaging for individuals, firms, and the market in general.

What are the underlying economic issues that drive stagflation?

In the 1970s, expectations about future changes in prices and about future economic activity became very important. When people expected inflation to go up, they would demand higher wages—what became known as wage-price spirals. You’d have higher inflation and then worker demands for higher wages to keep up with inflation, which would drive inflation higher. One feeds into the other. 

Firms and individuals also would try to shift their investments and their consumption patterns to match their expectations, compounding the problems and leading to higher unemployment.

Is the U.S. economy similar now to what it was in the 1970s?

The U.S. economy and the world economy in the 1970s were very different from what they are now. The U.S. economy was not as open as it is today. There was a big process of globalization in the intervening decades that made the economy more interdependent with the rest of the world.

The 1970s also had some shocks that affected expectations about how the economy would be in the future. The first shock was in August 1971, when the federal administration dropped the Bretton Woods Agreement, the fixed exchange rate between the dollar and gold, and introduced several other measures including wage and price freezes, and surcharges on imports. The new system of flexible exchange rates eventually affected prices, as did the oil price shocks of the 1970s, when energy prices rose rapidly. 

Why are some people concerned about stagflation now? 

I think it’s all about future expectations. Currently there is a lot of uncertainty relating to economic policy, and that creates problems for individuals and firms trying to plan for the future.

A big policy change is going on with tariffs and trade policy, implemented by the federal administration. Individuals could conclude that policy changes of this type would lead to higher unemployment and potentially lower economic activity. At the same time, because the tariffs impact prices, we could see changes in prices—higher inflation. These are all potential scenarios. 

What’s happening right now in the economy? 

If you look at the data now on a quarterly basis, the inflation of the Consumer Price Index in the last couple of quarters has been almost flat. And the unemployment rate, by standards of several decades ago, continues to be very low. So right now, I don’t see stagflation on the immediate horizon.