Darius recently joined Charles Payne on Fox Business to discuss why the Fed’s inflation fight is failing, the limits of traditional economic indicators, and how Trump’s potential policies could impact markets. If you missed the appearance, Here are three key takeaways that could significantly impact your portfolio:

​​1) The Fed’s 2% Inflation Target is Unattainable

Darius has been warning since January 2022 that the U.S. economy’s equilibrium inflation rate is in the high 2% to low 3% range, making the Fed’s 2% target unrealistic. Despite recent disinflationary trends, inflation remains sticky, and the latest data reinforces the idea that the Fed won’t get back to 2% without causing serious economic damage. Rather than continuing its restrictive policy, the Fed should revise its target higher and adjust accordingly.

2) Traditional Economic Indicators Are Outdated

Darius argues that widely used indicators like the Leading Economic Index (LEI) are outdated and less relevant in today’s economy. Decades ago, manufacturing made up 30% of GDP and 50% of employment—today, it is only 10% of GDP and 14% of jobs. This structural shift means that many recession indicators don’t capture the strength of the modern economy, which remains resilient due to fiscal stimulus and liquidity dynamics.

3) Trump’s Policy Agenda Could Trigger Inflationary or Deflationary Shocks—Depending on Its Sequence

Darius outlines his Triple S framework—Size, Sequence, and Scope—to evaluate Trump’s potential economic policies. The biggest risk? Sequence. If tariffs and immigration restrictions are implemented first, they could disrupt supply chains, tighten the labor market, and push inflation higher before pro-growth policies like tax cuts and deregulation take effect. The market impact depends on how these policies are rolled out and whether the positives outweigh the negatives.

Final Thought:

Liquidity is likely to trend higher through mid-2025, which is supportive for asset markets. That said, policy-driven inflation risks and potential Fed missteps remain key threats. Investors would be remiss to rely exclusively on fundamental predictions amid a historically wide distribution of probable economic and policy outcomes.

If your risk management signals are not keeping you on the right side of market risk, parter with 42 Macro and join the thousands of investors benefiting from our KISS Portfolio Construction Process and our Discretionary Risk Management Overlay, also know as “Dr. Mo”.

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