Wall Street on edge about a fate more terrifying than recession
A new government report has sparked fears that the US economy is losing steam just as prices threaten to rise again.
The US Bureau of Economic Analysis slashed its estimate of economic growth for the final three months of 2025 to just 0.7 percent, from 1.4 percent prior.
Officials routinely update GDP figures as more data comes in, and the latest revision points to a clear slowdown.
The downgrade was driven by falling exports, lower consumer spending and less government spending - thanks in part to a more complete view of the 2025 shutdown.
‘The most meaningful decline came from personal consumption, which accounts for roughly two-thirds of US GDP,’ said Bret Kenwell, an investment analyst at eToro.
‘The US is and has been on the precipice of recession for quite some time,’ Justin Wolfers, an economics professor at the University of Michigan, told CNN. ‘It only requires one thing to knock us over. Could oil do it? Absolutely’
Prediction markets believe the US could be heading for a recession in 2026, with odds soaring on Kalshi above 35 percent today from 25 percent last week - the highest odds seen on the platform since last fall.
Thanks to today's worse economic data, and last week’s lousy job and inflation reports, Wall Street has begun whispering about a terrifying possibility: Stagflation.
A container ship awaits unloading in Oakland, California in July 2025
Let’s unpack that last bit. Stagflation is what economists call the poisonous combination of rising prices and falling economic growth - think ‘stagnation’ plus ‘inflation.’
Prediction markets believe the US could be heading for a recession in 2026, with odds soaring on Kalshi above 35 percent today from 25 percent last week - the highest odds seen on the platform since last fall.
Thanks to today's worse economic data, and last week’s lousy job and inflation reports, Wall Street has begun whispering about a terrifying possibility: Stagflation.
Let’s unpack that last bit. Stagflation is what economists call the poisonous combination of rising prices and falling economic growth - think ‘stagnation’ plus ‘inflation.’
The dire data is fueling recession fears - the revisions also knocked full-year GDP estimates down to 2.1 percent from 2.2 percent prior - worries that are only worsened by the cost of the Iran War in blood, treasure and global oil prices.
In a speech last week, Chicago Fed president Austan Goolsbee warned that an oil price shock on top of rising unemployment would create ‘exactly the kind of stagflationary environment that's as uncomfortable as any that faces a central bank.’
Goolsbee was talking about interest rates and the Federal Reserve, but the fact is that falling GDP growth, sky high oil prices and fewer jobs are fears that impact every American consumer, not just central bankers.
Recent CPI inflation data suggests that US prices are steadily returning to normal, but a wonkier inflation report sends a more troubling signal that backs up the stagflation discourse.
A worker stands on the roof of a home under construction in Wesley Chapel, Florida
The core Personal Consumption Expenditures (PCE) index is an alternative measure of inflation.
The January report published today showed core PCE inflation rising for three months in a row - putting it above 3 percent.
‘The Fed is now looking at an environment where inflation remains sticky and will soon get an energy-fueled boost, while GDP growth and the labor market continue to lose momentum,’ said Kentwell.
And that’s a perfect set up for a recession - or even worse, stagflation.
