American exceptionalism are facing challenges

By Bo Colarusso

The narrative of American exceptionalism has been prevailing in recent years, given the strong economic fundamentals including robust labor market as well as consumption.

Right now this kind of notion is facing challenges given stagflation fears bubble up as Trump tariffs take effect and economy is slowing down. Also a growth scare in the economy has accompanied worries over a resurgence in inflation, in turn potentially rekindling an ugly condition that the U.S. has not seen in 50 years.

Fears over “stagflation” have come as President Trump seems determined to slap tariffs on virtually anything that comes into the country at the same time that multiple indicators are pointing to a pullback in activity. That dual threat of higher prices and slower growth is causing anxiety among consumers, business leaders and policymakers.

Among consumers, long-run inflation expectations are at their highest level in almost 30 years while general sentiment is seeing multi-year lows. Consumer spending fell in January by its most in nearly four years.

Markets are pricing in a greater chance the Fed will start cutting interest rates in June as a way to head off any economic slowdown. But some economists think the Fed reaction might do just the opposite — raise rates to shut down inflation, in the vein of former Chair Paul Volcker, who aggressively hiked in the early ’80s and dragged the economy into recession. If it looks like true stagflation with slow growth, they will sacrifice the economy absolutely.

In another words, American exceptionalism will face more challenges for the foreseeable future.

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