Is the Federal Reserve Trapped While Inflation Lingers and Markets Race Toward a Reckoning?

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The Federal Reserve is playing a dangerous game, pretending inflation is under control while the numbers tell a different story. Core CPI has been stuck between 3.1% and 3.2% since May 2024, while core PCE hasn’t budged below 2.7%. This isn’t a blip—this is the fifth straight year of inflation running above 3%.

Yet, Fed officials act as if they’ve won. Rate hikes? Off the table. Rate cuts? Just delayed, not canceled. Watch Waller and Goolsbee—both insist cuts are still coming, just “not yet.” Meanwhile, markets keep inflating, fueled by AI hype and a liquidity firehose that refuses to dry up. This is 1999 all over again, but with more leverage and a Fed that refuses to admit its policies aren’t restrictive enough.

Powell and company cling to the fantasy that the “neutral” rate is still in the 2s—just like before COVID. But where’s the economic damage from these supposedly high rates? The only real carnage is in office real estate, which had its own structural problems anyway. The rest of the economy? Chugging along just fine. Consumers still spending, markets still roaring, debt still ballooning.

The Fed is following the Arthur Burns playbook—slow to react, scared to tighten, hoping inflation fades on its own. But it won’t. Not with trillion-dollar deficits, rising wages, and financial markets ignoring every warning sign.