The US has flirted with the dreaded S-word for much of this year, and it’s not out of the woods yet.
That’s according to Torsten Sløk, the chief economist at Apollo Global Management who thinks the US is at a critical inflection point for stagflation, an dire scenario in which economic growth slows while inflation remains high.
That problem is often regarded as even harder for policymakers to solve than a typical recession, as higher inflation can prevent the Fed from cutting interest rates to boost the economy.
The scenario has largely been triggered by President Donald Trump’s tariffs, Sløk wrote in a whitepaper published on Monday.
“Tariff hikes are typically stagflationary shocks — they simultaneously increase the probability of an economic slowdown while putting upward pressure on prices,” Sløk wrote, adding that consensus forecasts on Wall Street for economic growth had drifted lower this year, while inflation forecasts have edged higher.
Bloomberg, Apollo Chief Economist
“That is the definition of stagflation,” he later added.
Here are four predictions Sløk is making for the US economy in the current environment:
1. GDP will more than halve from its peak last year
GDP growth will likely slow to around 1.2% in 2025, Sløk estimated. That reflects economic growth being slashed by more than half compared to its peak in the third quarter of 2024, when the GDP expanded 3.1% year-over-year.
GDP declined by 0.3% in the first quarter of 2025, according to the latest estimates from the Bureau of Economic Analysis, the first time the US economy contracted since 2022.
2. Inflation will remain above-average in 2025
Inflation will likely hover around 3% by the end of the year, according to Apollo’s forecast.
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The firm said it was a “significant increase” from its prior forecast, which pegged inflation at around 2.4% before Trump announced his sweeping tariffs in April.
3. Unemployment will rise through 2026
The jobless rate in the US will keep pick up through at least the next 18 months. Apollo estimates that unemployment could rise from 4.2% currently to 4.4% in 2025, and tick up to 5% or higher in 2026.
To be sure, Apollo’s forecast for year-end unemployment is still historically low, but rising unemployment has historically been linked to periods when the economy experienced stagflation.
When the US saw stagflation in the 70s and 80s, the unemployment rate peaked at around 9% in 1975, before cooling and rising to another peak of 10.8% in the early 80s, according to the Bureau of Labor Statistics.
4. The economy could still face a recession as soon as this summer
Apollo pegged the odds of a recession over the next 12 months at 25%. Prior to Trump’s tariffs, the firm was not anticipating a recession at all this year, Sløk said.
Sløk went on to note that there is still a risk the economy could enter a recession as soon as this summer, referring to his “voluntary trade reset recession” thesis he first floated as tariffs swung into effect earlier this year.
The idea involves the economy entering a recession this summer as tariffs cause shipments to US ports and trucking demand to slow, leading to empty shelves and lower sales for firms.
Apollo Chief Economist
The scenario still remains a risk, Sløk said, adding that the effects of Trump’s Liberation Day tariffs were “still working their way through the trade pipeline.”
Sløk has consistently warned about stagflation and a potential recession in recent months, though most forecasters on Wall Street generally expect the economy to avoid a downturn this year, particularly as the US continues to make progress on trade negotiations.
