A comparison of the current inflation trajectory with historical patterns suggests that disinflation may be running out of steam. The resemblance to the 1970s—another period defined by stagflation—is striking and points to the possibility of a renewed uptick in inflation: a so-called second wave.
The Federal Reserve is acutely aware of this risk and is therefore holding off on further rate cuts. However, this cautious stance runs counter to the preferences of the U.S. President, who has openly voiced his dissatisfaction with Fed Chair Powell and has even hinted at his potential dismissal.
What could trigger a second wave of inflation?
Premature rate cuts by the Fed, driven by political pressure to lower government refinancing costs. This would pave the way for additional “Big Beautiful Debts” to fund new rounds of military and fiscal spending.
The replacement of Powell with a dovish figurehead, more politically aligned and willing to ease policy irrespective of inflationary risks.
The reintroduction of Quantitative Easing, which—while supportive of asset markets—would further erode consumer purchasing power. The resulting impoverishment of the average household is unlikely to provoke public backlash, as many voters fail to grasp the link between monetary policy and inflation. This creates a convenient smokescreen for economically damaging yet politically expedient decisions. In short: economically disastrous, politically genius.
Tariffs and supply embargoes on China, which are unequivocally inflationary and pose a serious challenge to the U.S. economy.
Geopolitical risks in the Middle East. It remains uncertain whether the enriched uranium in Fordow was rendered unusable during the recent attack—or whether Iran had already relocated it. The regime now has more incentive than ever to obtain nuclear capabilities to deter further attacks and strengthen its bargaining power against Israel. Would Israel tolerate such a scenario? If not, a military escalation seems likely—and with it, renewed upward pressure on oil prices.
Several macroeconomic indicators are already flashing warning signals:
Continued decline of the Leading Economic Indicator (both in the U.S. and in the EU, UK, and other regions)
A slow but steady rise in unemployment (from 4.0% in January to 4.2%)
Falling home sales prices
A drop in the Containerized Freight Index, suggesting a global economic slowdown—especially in China-to-U.S. shipments
Partial re-inversion of the U.S. yield curve (10Y–3M)
Economic Policy Uncertainty Index at record highs
Trueflation in the U.S. has been climbing steadily since the April 2025 lows, now exceeding 2.20%
Conclusion: We are currently in a bull market, supported by a risk-on sentiment. However, the medium- to long-term outlook remains uncertain. A second wave of inflation is a plausible risk, and if realized, it could push the U.S. economy into either stagflation or outright recession.