• CG Asset Management warns that the U.S. may be heading toward a stagflationary environment following new tariffs on 60 trading partners.
  • The tariffs, combined with energy market pressures and supply chain disruptions, risk slowing growth while keeping inflation elevated.
  • Investors are advised to position portfolios for low growth and high inflation.

CG Asset Management has issued a stark warning to investors: a period of persistent stagflation—low growth combined with high inflation—may be on the horizon after the U.S. imposed fresh tariffs on 60 trading partners, including the European Union and China. The firm cautions that the protectionist measures, layered on top of existing energy market strains and ongoing supply chain disruptions, could seriously dent economic expansion while preventing inflation from retreating to central bank targets.

“The combination of broad-based tariffs and lingering supply-side pressures is a recipe for stagflation,” a senior strategist at CG Asset Management said in a note to clients. “We've seen early signs of it in recent producer price data and business surveys.” The firm points to the immediate impact on imported goods costs and the potential for retaliatory tariffs to exacerbate the situation.

The S&P 500 fell 1.5% on the day the tariffs were announced, while yields on 10-year Treasury notes edged lower as traders priced in a weaker growth outlook. The U.S. dollar initially strengthened on safe-haven demand but gave back some gains as export-oriented sectors faced headwinds. European stocks also declined, with the Stoxx 600 down 0.8%. “This is a classic risk-off move driven by uncertainty over trade policy and its spillover into the real economy,” said a portfolio manager at a rival asset manager.

Energy markets remain a wild card. While crude oil prices have been range-bound, the tariffs add to cost pressures for manufacturing and transportation. Supply chain bottlenecks, which have eased somewhat from their 2021-2022 peaks, could re-emerge if trade flows are disrupted. “We’re not yet at crisis levels, but the margins are getting tighter,” the CG strategist added. The firm now sees a 35% probability of a recession in the U.S. over the next 12 months, up from 20% prior to the tariff announcement.

Central banks face a dilemma. The Federal Reserve had been signaling rate cuts later this year, but a stagflationary impulse complicates that outlook. “The Fed may have to prioritize inflation over growth, which would mean higher-for-longer rates,” said a former Fed official reached for comment. The European Central Bank similarly faces a tug-of-war between supporting the economy and containing price pressures.

Private credit markets are also taking note. At a Bloomberg conference in Milan, executives from Blackstone and Tikehau Capital highlighted the importance of regulatory stability for cross-border investment, but the new tariffs inject uncertainty. Italy, a beneficiary of increased non-bank lending, could see capital flows slow if growth disappoints.

Update: Since the initial report, the White House has indicated that some sectoral exemptions may be considered, but no formal proposals have been made. A Treasury spokesperson declined to comment on market reactions.