The 10-year Treasury yield just hit 5% for the first time since 2007 — is a 1970s-style ‘stagflation’ on the return?

For years, a 5% yield on the Treasury looked like a relic from another interest-rate era—where borrowers faced soaring loan rates. Now it’s back, capping a six-year surge from pandemic-era lows near 0.5%. The benchmark yield crossed 5% this month for the first time since 2007, but this appears different than the eve of the Great Recession: the Fed is staring down a lose-lose situation combining high inflation and weak economic growth, a catch 22 that economists termed “stagflation” in the 1970s and long feared through the 10-year’s climb upward since the pandemic. 

The last time the U.S. experienced this mix of trends — called “stagflation” by economists — was in the 1970s, during the Oil Crisis—and it took years for markets to digest the paradox of higher inflation, requiring higher interest rates, and weak economic growth, needing the opposite.

“We’re certainly in a stagflationary period,” famed investor Ray Dalio told CNBC in April. “How that transpires has a lot of parts to it, but we’re certainly in that.”

But to be clear, today doesn’t come close to the stagflation crisis in the 70s. Inflation peaked near 14.8% in March 1980, more than four times today’s 3.4% rate, and unemployment topped 9% during the mid-decade oil shock, versus roughly 4.1% now. The Fed’s response was proportionally brutal, too: Chair Paul Volcker pushed the federal-funds rate to 20% by 1981 to break inflation’s back, triggering a recession that pushed unemployment above 10%—a scale of pain nowhere........

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