5% Is Normal. The Deficit Isn’t. | Tim Paulson

Federal Reserve interest rate decisions serve as a secondary influence on market dynamics compared to the significant, persistent impact of massive fiscal deficits and long-term economic expectations. While headline inflation remains volatile due to energy prices, core inflation is increasingly driven by sticky wage gains. The ongoing AI infrastructure build-out creates short-term inflationary pressures by competing for energy and resources, challenging the narrative that AI will immediately deliver deflationary benefits. Despite concerns over high tech valuations, current market performance is anchored by tangible earnings, distinguishing the present environment from the speculative dot-com era. Election outcomes, while generating significant market noise, remain secondary to the structural reality of a $2 trillion annual fiscal deficit, which continues to shape the trajectory of interest rates and long-term capital market stability.