Unprecedented! The stagflation ghost of 1973 reappears. Can your $BTC and $ETH withstand this calamity?

Fifty-three years ago, then-Fed Chair Burns told Congress that oil shocks were exogenous variables, and monetary policy did not need to overreact. The result was seven years of runaway inflation, the real value of long-term bonds was halved, and gold soared from $35 to $850.

Now, the new Chair Waller describes the situation at a hearing using an almost identical logical framework: oil shocks are exogenous variables, AI productivity provides a buffer, and monetary policy does not need to respond excessively. A whole generation of investment lessons lies between these two statements.

In April, the CPI year-over-year expectation reached 3.7%, WTI crude oil stayed above $100, and non-farm employment has weakened. The asset script from the 1970s—long gold and physical assets, shorten bond durations, avoid broad equities—is being increasingly reconsidered by institutions.

All three conditions are met simultaneously: energy shocks driven by Middle East conflicts, inflation running above target levels, and economic growth slowing down together. Daily transit ships through the Strait of Hormuz have plummeted from about 70 pre-war to 2-5 ships, with a weekly supply gap accumulating at roughly 100M barrels, totaling about 880 million barrels so far. Trump rejected Iran’s phased negotiation framework, and the blockade’s duration remains uncertain.

On inflation, US CPI accelerated from 2.4% in February to 3.3% in March, with April expected to rise further to 3.7-3.8%. The federal funds rate remains capped at 3.75%, and real interest rates are approaching zero.

However, today three structural differences fundamentally limit the transmission path of a full stagflation similar to the 1970s. First, the US is now the world’s largest oil producer, with domestic output capable of offsetting a significant external gap. Second, the wage-price spiral mechanism no longer exists—labor compensation as a share of GDP is at a historic low, and unionization rates continue to decline. Third, corporate profit margins are high rather than low: the S&P 500’s net profit margin in Q1 was 14.7%, the highest on record according to FactSet; 84% of companies beat expectations.

These three differences suggest current conditions are closer to “differentiated war inflation” rather than a complete replication.

However, the 14.7% profit margin in Q1 is highly concentrated among a few companies. The four major cloud giants—Google, Amazon, Microsoft, and Meta—are projected to spend a combined $725 billion on capital expenditures by 2026, up 77% year-over-year, supporting the entire index profit ceiling. Excluding these companies, industries like aerospace, logistics, retail, and dining—those directly sensitive to energy costs—are experiencing very different profit pressures.

Waller suggests that AI-driven productivity gains could support a relatively loose policy stance. But the systemic overhaul of broad-spectrum economic productivity via energy and internet has taken over 15 years each. The timing window for energy cost shocks and core inflation’s stickiness to impact broad sectors differs significantly from the timing of AI productivity diffusion.

If CPI remains between 3.7% and 3.8%, and core month-over-month stays at 0.3%, Waller will face his first inflation report card: persistent inflation and near-zero real interest rates. His subsequent policy stance—whether to stick to the “AI productivity supports low rates” framework or shift to a traditional data-driven approach—is the single most important variable to watch.

On long bonds, the 10-year yield rose from 5.65% in the 1970s to 13.92%, causing holders’ real wealth to shrink continuously. Today, the 10-year is at 4.24%, and the 30-year at 4.87%, with a bear steepening curve. Inflation remains relatively high compared to nominal rates, and the long end has not fully priced in persistent inflation exceeding expectations. The steepening trend continues. The failure condition: if Waller is forced to rapidly turn hawkish and sharply raise rates, long-term real yields could jump, providing some relief for bond prices. Currently, his public framework points in the opposite direction.

Gold at $4,672 per ounce has surpassed its inflation-adjusted peak from 1980, pricing in a significant degree of inflation and geopolitical risk premiums. The key condition for upside potential depends on Waller’s policy path: if he shifts to hawkish rate hikes, rising real yields will suppress gold; if he remains dovish, gold will stay high but with limited marginal upside. Gold bulls are betting on the policy direction, not inflation itself.

In commodities, crude oil above $100 remains one of the strongest performers of the S&P 500 this year. But the driver is the geopolitical variable of the Strait of Hormuz blockade—quickly reversible. Saudi Aramco’s CEO said that even if the strait reopens today, market normalization would take until 2027. However, prices are re-pricing ahead of physical recovery: once a breakthrough in ceasefire talks occurs, oil prices will fall rapidly. Using energy bulls as an inflation hedge presupposes ongoing geopolitical deadlock, which is an independent geopolitical wager.

The broad equity market’s current valuation relies on the premise that “AI’s moat is sufficiently wide.” Q1 data reflect conditions before the full transmission of oil shocks. If inflation remains above 3.5%, sectors like airlines, dining, and discretionary consumption will face demand-side contraction. The true signal of a 1970s stagflation spiral is a systemic decline in broad profit margins from their peak—currently still high historically, but the Q2 earnings season at the end of July will be the first critical window.

Next, watch: Waller’s comments after today’s CPI release; the June FOMC dot plot; the Hormuz negotiations; and the Q2 earnings season at the end of July. The heaviest part of the 1970s wasn’t how much oil prices rose, but how long policy misjudgments persisted—from Burns’ first misjudgment in 1973 to Walker’s aggressive rate hikes in 1979, spanning six years in between.

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