Stuffing banks with reserves via Quantitative Easing doesn't spur lending if there's no real economy demand. The current shift is driven by a genuine "pull" for credit from sectors like AI and onshoring, making banks willing to lend, which is a far more powerful economic force.

Recent inflation was primarily driven by fiscal spending, not the bank-lending credit booms of the 1970s. The Fed’s main tool—raising interest rates—is designed to curb bank lending. This creates a mismatch where the Fed is slowing the private sector to counteract a problem created by the public sector.

The massive capital investment in AI by major tech companies has the potential to significantly boost national productivity. This productivity gain could, in turn, lower inflation, providing the Federal Reserve with a rationale to decrease interest rates.

For the past decade, the Fed was the primary driver of liquidity. Now, the focus shifts to commercial banks' willingness and ability to create credit to fund major initiatives like AI and onshoring. Investors fixated on Fed policy are missing this crucial transition.

Since 2014-2015, the Federal Reserve's actions have not materially impacted the economy's flow of funds. The intense market focus on Fed announcements is a distraction from the true economic driver: fiscal policy. Analysis should sideline the Fed to gain a clearer picture of the economy.

Despite the highest benchmark interest rates in years, the U.S. economy avoided a major wave of corporate bankruptcies. This resilience can be attributed to the explosive growth of private credit, which provided an alternative financing channel for companies when traditional bank lending became more restrictive.

Large, ongoing fiscal deficits are now the primary driver of the U.S. economy, a factor many macro analysts are missing. This sustained government spending creates a higher floor for economic activity and asset prices, rendering traditional monetary policy indicators less effective and making the economy behave more like a fiscally dominant state.

The Federal Reserve's monetary policy is less effective today. The growth of private credit and large firms self-financing investments (like in AI) means significant economic activity is insulated from traditional bank lending channels, reducing the impact of rate hikes.

Modern Western economies are dominated by services (media, law, medicine) that are not capital-intensive and don't rely heavily on borrowing. This diminishes the impact of interest rate changes on the real economy, explaining why aggressive rate hikes haven't caused a recession and why low rates post-2008 didn't create inflation.