Rational Dissent Episode 014. Inflation is Still the Problem

The U.S. economy has transitioned into a structural 3% inflation environment, rendering the Federal Reserve’s 2% target increasingly obsolete. This shift stems from post-COVID deglobalization, persistent supply chain constraints, and deliberate policy choices to prioritize domestic manufacturing over cheap imports. While economists consistently forecast a return to 2% inflation, data shows core PCE has doubled to 3.4% since 2020. Jim Bianco, president of Bianco Research, argues that the Federal Reserve should align interest rates with nominal GDP—currently averaging 5%—rather than allowing the bond market to dictate restrictive conditions. Protectionist measures, such as banning affordable Chinese electric vehicles like BYD, underscore a societal preference for job security over goods deflation. Consequently, interest rates must remain elevated to reflect this new economic baseline, as services inflation remains sticky due to wage growth and remote work dynamics.