After a brief period of relative stability earlier this year, concerns about inflation are once again influencing investor behavior in the United States. In the spring, key macroeconomic indicators looked promising, but by summer new risks emerged that could reignite upward pressure on prices. With growing fiscal spending, tariff barriers, and geopolitical tensions, the market is increasingly factoring in a scenario of renewed inflationary pressure. This shift is changing how financial market participants act: expectations for interest rates are being revised, demand for defensive assets is rising, and stock indices are becoming more sensitive to macroeconomic headlines.

Sources of concern in the US economy

Inflation expectations in the US began climbing again after the core consumer price index (core CPI) stopped declining and remained steadily above 3% year over year. Price growth has been particularly strong in services, health insurance, and imported goods — especially those affected by rising tariffs.

The federal budget remains in deficit, while total government debt has surpassed $35 trillion, fueling concerns about debt sustainability and the future of monetary policy. In this environment, the risk of stagflation is increasing — a combination of slowing GDP growth and persistently high inflation.

Why investors fear inflation

At this stage, investor concern is not about hyperinflation, but about prolonged and sticky inflation — the kind that is difficult to bring down without damaging the broader economy. Key drivers of inflation risk in the US include:

• Growth of trade barriers. New tariffs on Chinese and European goods raise production costs and put upward pressure on consumer prices.
• Fiscal expansion. Stimulus programs, infrastructure packages, and social spending increase demand while supply remains constrained.
• Slow productivity growth. With continued labor shortages, businesses are forced to pass rising costs onto consumers.
• Reassessment of Fed policy. In a volatile price environment, markets are no longer confident that rate cuts will occur in 2025.
• Commodity and energy prices. Rising costs of oil and industrial metals are boosting inflation expectations in the near term.

Taken together, these factors suggest that inflation may stay above the Federal Reserve’s 2% target longer than previously anticipated.

How US financial markets are reacting

US markets are already showing signs of caution. Yields on 10-year Treasury bonds are rising again, and the MOVE Index — a measure of bond market volatility — is flashing warning signals. In response, demand for gold, defensive stocks, and inflation-protected securities (TIPS) remains strong.

Although US stock markets hit new highs earlier in the year, they have become more sensitive to macroeconomic data. Sectors with high operating leverage are losing appeal, while investors are shifting toward stable, dividend-paying companies.

The renewed rise in inflation remains one of the main risks for US investors in the second half of 2025. Underlying drivers — from trade policy to a persistently large fiscal deficit — are making inflation more durable than many had expected. Against this backdrop, investors are adjusting their strategies: moving into defensive assets, increasing bond allocations, and reducing exposure to interest rate-sensitive sectors.