You'll rarely hear the word "stagflation" uttered by central bankers, for good reason

Central bankers often avoid using the term "stagflation" because it refers to a troubling economic situation where inflation is high, economic growth is slow, and unemployment is also high. This combination makes it very challenging for central banks to manage the economy effectively.

In the United States, recent trade tariffs have raised concerns about stagflation. Former New York Federal Reserve President Bill Dudley mentioned that stagflation might be the most optimistic outcome given the current economic challenges. He expects inflation to reach 5% within six months, which could hurt low- to moderate-income families.

Federal Reserve officials are also worried. Chicago Fed President Austan Goolsbee called the tariffs a "stagflationary shock," meaning they could cause both higher prices and slower economic growth. This situation is difficult because the usual tools to fight inflation, like raising interest rates, can slow down the economy even more.

In Canada, the situation is somewhat different. Bank of Canada Deputy Governor Sharon Kozicki stated that the risks of stagflation have lessened. Inflation has been below 3% for several months, and while economic growth has been modest, it's expected to improve. The central bank even reduced its main interest rate recently, indicating confidence in the economy's direction.

Bank of Canada Governor Tiff Macklem emphasized that today's economic conditions are not like the 1970s. He believes that central banks have learned from past mistakes and are better prepared to handle inflation without causing a recession. Macklem is optimistic that with careful policy adjustments, the economy can avoid stagflation.

Overall, while the term "stagflation" is concerning and central bankers prefer not to use it, they remain vigilant. By closely monitoring economic indicators and adjusting policies as needed, they aim to maintain stability and avoid the challenges associated with stagflation.