Nobel economist Paul Krugman says stagflation risk is rising, even after the Fed dismisses it

• Economist Paul Krugman thinks the risk of stagflation for the US is rising.
• Krugman is concerned, even after Fed Chair Powell said he doesn't see stagflation.
• The economist said he sees strong parallels to the 1970s, when inflation rose and growth slowed.

Economist Paul Krugman said he thinks stagflation risk is on the rise, even after Federal Reserve Chairman Jerome Powell pushed back on the idea in his press conference on Wednesday.

Following the latest meeting of the Federal Open Market Committee, the outgoing Fed chief said that while the current economic climate is difficult, he doesn't see it as comparable to the period of the 1970s, a decade characterized by spasms of inflation and weak economic growth.

Krugman, meanwhile, isn't so sure. The winner of the 2008 Nobel prize wrote on Thursday that he was eyeing a high risk of stagflation even before the Iran war broke out. As geopolitical tensions continue to drive uncertainty, he thinks the US has more reason to be concerned.

"Powell says that the economy's troubles weren't severe enough to be called stagflation. But things were looking a bit, well, stagflationish," Krugman wrote in a post on his Substack.

Stagflation is often seen as the worst-case scenario for an economy, as it presents challenges for policymakers that extend beyond an economic slowdown. Mainly, it can prevent the Fed from cutting rates to stimulate the economy out of fear that it might stoke more inflation.

Krugman's thesis is similar to that of the "stagflation-lite" forecast made by RBC analysts in September 2025, who pointed to high housing costs and rising tariffs as potential stagflation drivers.

The economist acknowledged that while he doesn't see a period of full-blown stagflation yet, the possibility remains that conditions could worsen. Despite Donald Trump's statements, he doesn't think the Strait of Hormuz will be reopened soon, which is the one thing that would likely soothe volatile oil markets.

Meanwhile, in the US, inflation continues to rise while job growth numbers look to be weakening. Krugman said that despite expectations that inflation would fall, it has moved in the opposite direction, as most recently evidenced by the Producer Price Index.

"There's an uncomfortable parallel here with 1973, the year stagflation is generally considered to have started," he said. "I'm not sure how many people are aware that one reason the 1973 oil shock hit so hard was that inflation was already rising fast even before the Yom Kippur War led to the Arab oil embargo, which triggered the first oil crisis."

Krugman added that while the numbers from that time were worse than they are today, he sees enough of a resemblance to be concerned.

"If you restrict the term stagflation to situations that quantitatively resemble the 1970s, we aren't there yet. But there's definitely a whiff of stagflation in the air."