Powell warns of cooling jobs amid sticky inflation

Powell warns of cooling jobs amid sticky inflation

Federal Reserve Chair Jerome Powell summarized the macroeconomic landscape with a phrase that triggered alarm bells: "Labor market conditions are cooling while inflation remains somewhat elevated." In plain terms, this signals stagflation—a term reminiscent of the 1970s. The combination of rising unemployment, sluggish growth, and stubborn prices leaves central banks with little maneuvering room. Raising rates stifles the economy; cutting them risks an inflationary surge.

What is stagflation and why is it back now?

Stagflation is not a typical recession. It represents the worst of both worlds: stagnant growth, rising joblessness, and soaring prices. Usually, high inflation accompanies strong growth, while high unemployment aligns with recession. Here, these two poisons converge. The last comparable episode was the 1970s oil crisis, when youth unemployment spiked, coinciding, according to harsh analyses, with increased heroin consumption in certain areas.

The difference today is the lack of margin for a Volcker-style response, which involved raising rates to an average of 12% to destroy the economy short-term to save it long-term. Today, the debate is whether anyone has the political stomach to repeat such measures.

The AI-as-lifeguard argument doesn't hold up

Some argue that artificial intelligence will solve the problem via productivity gains: more output with fewer workers, ensuring enough growth to avoid recession. However, this scenario is not currently on the table. Powell does not mention it. If AI fails to deliver on short-term promises, the adjustment will first hit the tech sector, where mass bankruptcies are already being discussed.

The most optimistic calculation assumes productivity takes off before unemployment spirals out of control. The pessimistic view holds that AI destroys administrative and service jobs before creating new ones. In the middle lies the Fed, without leverage.

Spain isn't in stagflation, but clouds are gathering

Spain has been Europe's growth darling in recent years, pulling the wagon while the rest of the EU dragged its feet. But this does not make it immune. Inflation is not fully under control, and although unemployment is falling, it remains structurally high. If the global environment worsens, public spending margins narrow, making the combination uncomfortable.

The OECD published GDP growth forecasts that some use to dismantle the catastrophic narrative about the United States. Others counter that forecasts are revised quarterly and that underlying inflation data does not lie.

Who wins and who loses in this scenario?

In a prolonged high-interest-rate environment, those dependent on credit fall first: variable-rate mortgage holders, companies with thin cash buffers, and freelancers relying on working capital lines. Survivors buy out the fallen. Business concentration accelerates.

Some see this as a generational opportunity. Those with liquidity can buy bonds at distressed prices when the Fed is forced into a sharp pivot. Those without will pay the bill. Public debt is diluted by inflation, benefiting the debtor—in this case, states. The ordinary saver pays the price.

Gold, silver, and the classic safe haven

In this context, precious metals return to the forefront. Long-term holders speak of triple-digit returns. The logic is simple: if fiat money loses value and real rates do not compensate, gold acts as a refuge. Silver, more volatile, trinc the same path with more noise.

The question is whether we face sustained 2-3% inflation or something worse. If it spirals, monetary tightening becomes inevitable and brutal. If contained, the adjustment will be slower but equally painful for those living in debt.

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The confusing data point: while debating whether stagflation exists, global debt continues to grow, and no one has yet explained how to repay it without inflation or default. Powell knows this. That is why he chooses his words carefully.