Inflation Won't Go Back to 2%. Here's What Happens Next

Key Takeaways

• Inflation likely stays above 2%: PCE ~3% recently, with energy shocks, AI bottlenecks and services keeping price pressures broad and sticky.
• Fed committed to 2% but may not achieve it soon; further hikes (potentially to ~4%) could spark a recession—monitor real rates and policy signaling.
• Fiscal deficits and net new money have supported rising corporate profits; use a sectoral-balance view linking nominal GDP, investment, and profits to assess markets.
• Tactical horizon ~6 months: overweight equities (semiconductors, energy, materials, telecom), underweight long and corporate bonds; retain some duration, gold and managed futures for diversification.
• AI raises productivity and corporate margins, compressing labor share and weakening wage gains; policy should address displaced workers to sustain consumer demand.
• Treat Bitcoin as a risk‑on asset within risk allocations—not yet a true diversifier; avoid concentration and favor multi-asset diversification.

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