Hold onto your hats: As Trump 2.0 nears, we should be afraid. Very afraid.

From Trumpflation to stagflation?

More ominous are Trump’s calls to rein in the Federal Reserve, the United States’ central bank that calls the shots on global interest rates.

Technically, the Fed is 12 privately-owned banks (and the Federal Reserve doesn’t even have “bank” in its name), but it is subject to Congressional oversight, and its chair is appointed by the President. However, the Fed is independent and conducts monetary policy (that is, interest rates) autonomously of party politics.

The Fed has been deeply unpopular among some Congressional factions – particularly Republican representatives – since the global financial crisis. More recently, the Fed’s rigorous commitment to disciplined monetary policy to combat post-COVID inflation has led to stubbornly-high interest rates, raising costs for both businesses and households.

Inflation globally has emanated partly from cost-push (supply-side) and demand-pull (demand-side) factors. The Ukraine war has been a major factor behind global inflation, although certainly not the only one.

Pre-2022, Ukraine was not only a global food basket, but also a key source of neon gas, a critical component in powering precision lasers used in semiconductor fabrication.

A combination of conflict on the back of COVID-era government spending to keep locked-down people and businesses afloat, plus the tariff wars, means the global economy is not only awash with cash, but also replete with unmet demand for EVs, chips and energy.

Oil and gas, while still sold cheaply by Russia to its partners in Beijing and New Delhi, have seen sustained price peaks until recently, as the Ukraine war saw Europe wean itself off Russian fossil fuels, while ratcheting up EU demand for alternative sources of gas and oil supplies.

Moreover, as the Israel-Gaza conflict has dragged on beyond 12 months, this raises heightened risks concerning the likelihood of instability in the Middle East and concomitant effects upon global energy prices.

Further exacerbating the risk is the near-certainty of friction between the Iranian regime and the incoming Trump 2.0 administration.