True economic prosperity for the majority comes from wage growth, which leads to inflation and higher rates. These factors are poison for the long-duration assets and leveraged models that Wall Street depends on, creating a direct conflict of interest in policymaking.

The Fed's latest projections are seemingly contradictory: they cut rates due to labor market risk, yet forecast higher growth and inflation. This reveals a policy shift where they accept future inflation as a necessary byproduct of easing policy now to prevent a worse employment outcome.

The Federal Reserve's anticipated rate cuts are not merely a response to cooling inflation but a deliberate 'insurance' policy against a weak labor market. This strategy comes at the explicit cost of inflation remaining above the 2% target for a longer period, revealing a clear policy trade-off prioritizing employment over price stability.

Governments with massive debt cannot afford to keep interest rates high, as refinancing becomes prohibitively expensive. This forces central banks to lower rates and print money, even when it fuels asset bubbles. The only exits are an unprecedented productivity boom (like from AI) or a devastating economic collapse.

Politicians choose rate cuts because balancing the budget is politically unpopular and would trigger an immediate economic crisis. By lowering rates, they can "kick the can down the road," making massive government debt refinancing manageable. This intentionally fuels an "everything bubble" in assets as a preferable alternative to politically unpalatable fiscal responsibility.

Analysis of delinquency rates revealed that high-income earners were initially seeing the fastest increases. The key differentiator for financial stability was not income but wealth, particularly homeownership, which provided a financial cushion against economic shocks.

A single neutral interest rate may not exist. There could be one R-star for the investment-heavy AI sector and another for housing. A separate R-star might even be needed for financial stability. This divergence means the Fed faces a policy trade-off where a rate that balances one part of the economy could destabilize another.

Despite low unemployment and high inflation, the Fed is cutting rates to preempt a potential job market slowdown. This "run hot" strategy could accelerate an economy already showing signs of heat from high valuations and low credit spreads, creating significant risk.

The Fed faces a political trap where the actions required to push inflation from ~2.9% to its 2% target would likely tank the stock market. The resulting wealth destruction is politically unacceptable to both the administration and the Fed itself, favoring tolerance for slightly higher inflation.