Playing with fire

Source: New York Times

   By Guest Blogger Ryan Lewenza

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We recently published our Turner Investments 2026 outlook and, while our overall stance on the markets remains constructive, we see a number of risks that could impede or even derail the current bullish economic and market cycle.

A key concern this year is rising geopolitical risk – particularly President Trump’s increasingly unpredictable and expansionist policies. His recent actions and rhetoric around Venezuela, Canada and possibly seizing Greenland have injected additional volatility into markets and if there’s one thing we know, markets don’t like uncertainty.

This risk is captured in the chart below, which tracks global geopolitical uncertainty. The index has climbed sharply in recent months, underscoring the heightened level of concern.

Global economic uncertainty index hits new highs

Source: Economic Policy Uncertainty

Let’s review some recent controversial policy developments from the 47th president that are contributing to the rise in geopolitical and macroeconomic risk.

Tensions between President Trump and Federal Reserve (Fed) Chair Jerome Powell have escalated, as the president has intensified efforts to remove Powell and install a more politically aligned Fed chair. The objective appears clear: to exert greater influence over monetary policy and push interest rates substantially lower in support of the administration’s economic agenda.

Although the Fed cut rates three times last year, bringing the policy rate to 3.25–3.50%, Trump has publicly signaled a preference for rates closer to 1%. As a result, the administration has increasingly pressured the Fed – historically an independent institution – in an attempt to gain greater control over interest rate policy.

These efforts have extended beyond public criticism, such as Trump calling the Fed Chair an “idiot” and “Too late Powell”. The administration attempted to remove Lisa Cook, a member of the Board of Governors, citing allegations of mortgage fraud. That case reached the Supreme Court this week, where justices appeared skeptical of Trump’s legal basis for her dismissal.

Last week the U.S. Department of Justice opened a criminal investigation into Chairman Powell, ostensibly related to cost overruns in the renovation of the Federal Reserve building – an unprecedented move that is chipping away the Fed’s independence and in turn, spooking markets.

The broader issue is that when a central bank loses its independence and monetary policy becomes driven by political priorities rather than objective economic analysis, the long-term consequences are almost invariably negative. History shows that such interference increases the risk of policy mistakes, undermines market confidence, and raises the probability of financial instability.

Why does this matter? Artificially suppressing interest rates can overstimulate economic activity and eventually lead to higher inflation. When inflation is allowed to run unchecked, it can quickly become entrenched, as seen in cases such as Zimbabwe, Turkey, and more recently Iran.

In nearly every historical example where political authorities have exerted undue influence over central banks, the outcome has been runaway inflation, currency depreciation, and long-term economic damage.

The chart below illustrates long-term U.S. inflation since 1990, during which CPI has averaged approximately 2.7%. If the Federal Reserve were forced to keep rates artificially low and inflation pressures were allowed to build unchecked, the likely outcome would be a resurgence of inflation, a weaker U.S. dollar, and ultimately higher long-term interest rates as investors lose confidence in both the economy and the independence of the central bank.

US CPI since 1990

Source: Bloomberg, Turner Investments

Finally, Trump’s recent aggressive posture toward Greenland has further unsettled markets and strained relations with key allies. Trump attempted to pressure Denmark, Greenland, and European partners to agree to a potential sale of the autonomous territory, at one point even suggesting that military force could be used – remarks that were widely viewed as destabilizing and unprecedented among NATO allies.

As part of this strategy, Trump announced that the U.S. would impose an additional 10% tariff on imports from eight European countries unless they agreed to negotiations that included Greenland. The move heightened geopolitical tensions and added uncertainty for global trade and diplomatic relations.

Trump reversed course by retracting the tariff threat following discussions with NATO, during which the parties agreed to a “framework” to explore a potential Greenland purchase or enhanced security arrangement. While the immediate escalation was defused, the episode reinforced concerns around policy volatility and the use of economic leverage for political ends.

Trump is a danger, but he brings positives

All that said, it is important to acknowledge that President Trump brings several meaningful positives to the economic and market outlook this year.

First, his One Big Beautiful Bill, passed last year, included a series of tax cuts that are set to take effect in 2026. These measures could provide an estimated $300 billion in additional stimulus, largely through higher tax refunds and increased disposable income for U.S. households.

Second, the administration has secured a number of high-profile investment commitments from foreign governments and multinational corporations. While the headline figures are often exaggerated, the combination of tariffs and aggressive negotiation tactics has nonetheless encouraged a notable increase in announced investment into the U.S.

Finally, Trump and his administration continue to pursue broad deregulation efforts. Over time, these measures have the potential to reduce business costs, streamline approvals, and accelerate infrastructure and industrial projects, supporting longer-term economic growth.

In classic Trump fashion, his strongly pro-business agenda has the capacity to meaningfully stimulate the U.S. economy. However, it remains in tension with other policies and rhetoric that risk undermining confidence and offsetting those gains. Ultimately, the market impact will depend on which side of that equation dominates as the year unfolds.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2026/01/24/playing-with-fire/