Stagflation
Persistently high inflation combined with stagnant or contracting growth — the regime most hostile to both stocks and bonds simultaneously.
Definition
Stagflation breaks the standard policy tradeoff: cutting rates worsens inflation, hiking rates worsens growth. It typically follows supply shocks (energy, labor, commodities) that hit costs without boosting demand, leaving central banks with no clean response.
The 1970s remain the canonical example, when consecutive oil shocks combined with eroded Fed credibility produced a decade of negative real bond returns.
Public research record
Research framework · page evidenceCompleted application: Stagflation
Stagflation is the regime in which diversified portfolios fail most completely. The hedges are non-obvious: real assets, commodity producers, and short duration.
| Type | Claim | Scope |
|---|---|---|
| Release fact | Persistently high inflation combined with stagnant or contracting growth — the regime most hostile to both stocks and bonds simultaneously. | Macro |
| Release fact | 1973–1981: US CPI averaged ~9% with two recessions. Stocks were flat nominally, bonds lost ~30% real, and gold rose ~20× from $35 to ~$850. | Published example |
Countercase, invalidators, and sources
The relationship is conditional: another driver can dominate the same asset over the selected horizon.
- · The underlying observation changes materially.
- · The selected asset has no measurable exposure to this mechanism.
Why it matters
Stagflation is the regime in which diversified portfolios fail most completely. The hedges are non-obvious: real assets, commodity producers, and short duration.
Worked example
1973–1981: US CPI averaged ~9% with two recessions. Stocks were flat nominally, bonds lost ~30% real, and gold rose ~20× from $35 to ~$850.