Even if geopolitical conflicts resolve and growth recovers, inflation and energy prices are expected to remain elevated. This structural "regime shift" makes central bank policy more challenging and firmly places the emphasis on FX carry strategies, where investors profit from interest rate differentials between currencies.

Ignore comparisons to the late 1990s. The current environment of massive government debt requires inflating our way out, similar to the post-WWII period. This suggests an era of hotter but shorter economic cycles (2-3 years), unlike the long, disinflationary expansions of recent decades.

Since leaving the gold standard in 1971, the default government response to any financial crisis has been to expand the money supply. This creates a persistent, long-term inflationary pressure that investors must factor into their strategies, particularly for fixed-income assets.

Due to massive government debt, the Fed's tools work paradoxically. Raising rates increases the deficit via higher interest payments, which is stimulative. Cutting rates is also inherently stimulative. The Fed is no longer controlling inflation but merely choosing the path through which it occurs.

For decades, supply chains were optimized for cost reduction. Post-crisis, the focus has shifted to security, resilience, and localization. This move away from pure efficiency by adding redundancy and increasing defense spending is inherently inflationary, reversing a long-term deflationary trend.

The current inflationary period is analogous to the 1970s, structured as a three-act play. We have passed Act 1 (initial shock) and Act 2 (premature all-clear), and the Iran conflict is the catalyst for Act 3 (inflation's resurgence), similar to how the 1973 Yom Kippur War triggered a new wave.

In a world of high debt and low organic growth (from demographics and productivity), the only viable path for governments is to ensure nominal GDP grows. This will likely be achieved through inflationary policies, making official low-inflation forecasts unreliable over the long term.

The Fed was designed for a supply-side economy. In the current populist era, structural inflation is driven by political demands for wealth redistribution and 'fairness.' The Fed's tools only benefit the wealthy and cannot address this core political issue, rendering it powerless, much like it was in the 1970s.

The current economic cycle is unlikely to end in a classic nominal slowdown where everyone loses their jobs. Instead, the terminal risk is a resurgence of high inflation, which would prevent the Federal Reserve from providing stimulus and could trigger a 2022-style market downturn.