The Inflation Genie Is Still Loose

The Federal Reserve kept interest rates unchanged on Wednesday. No surprises there. Markets were giving a rate cut only a 3% chance coming into the FOMC meeting.

There was also little surprise from Fed Chair Jerome Powell.

The economy is enjoying strong growth. Q3 2025 GDP came in at 4.4%. The job market is showing signs of stabilizing. While new job numbers are sliding, there’s yet to be any major uptick in unemployment.

And though inflation is still above target, the Fed now thinks that the bulk of tariff-induced price increases have worked their way through the economy.

Powell even offered his yet-to-be-named successor some sage advice about keeping out of politics. Overall, the Fed sees no need to push ahead with further cuts.

But while the market’s reaction was a bit ho-hum, an ever-growing number of issues are bubbling beneath the surface…

Institutional Independence

I’m not expecting any cuts before Powell’s tenure finishes in May. The real question is what comes after that.

Two of Trump’s Fed appointees voted to cut rates by 0.25% at this week’s meeting. Pressure to cut is only going to build, whoever takes Powell’s place.

Despite three cuts in the latter half of 2025, the White House is blindly determined to get rates even lower. That battle is going to unfold once Jerome Powell is gone.

Plus, the Fed has a whole range of factors to contend with…

I know that geopolitical has become a buzzword in 2026. Tensions are growing around the world – some of which are homegrown.

One of the great underpinnings of the U.S.’s success has been the strength and independence of its institutions. But that diminishes if they’re seen to bow to political pressure. The same is true if the U.S. keeps threatening foes and allies alike with tariffs and sanctions – including talk of “taking” other countries.

That sets the scene for trade wars, which can be a real drag on the global economy. It also means that folks will be less inclined to do business with U.S. companies or invest in U.S. assets – one of the narratives behind the de-dollarization theme.

And those aren’t the only factors that could throw markets for a loop…

Easy Money Is Gone

With the Fed decision now behind us, markets are dialed in on corporate earnings. People are watching for any hints that the Magnificent Seven can roar back to life and enable them to reap easy money again.

But those times are gone… As we’ve already seen, the market reacted very differently to earnings from Meta Platforms and Microsoft this week. We can expect further mixed reactions ahead.

Plus, as we’ve been discussing on my podcast Trading with Larry Live, I don’t yet believe the Fed has fully recaptured the inflation genie.

While gold and silver are capturing the headlines, other critical commodities are also getting pulled higher (like oil, gas, copper, and aluminium). Rising energy and material costs permeate the whole economy and can keep inflation ratcheting higher.

Right now, markets are factoring in two interest rate cuts by the end of the year. But those cuts could soon evaporate if inflation begins to rise (no matter what the White House wants). That would have implications for an already jittery market.

So my advice is to stay primed for surprises ahead.

Only trade what you see and not what you think is going to happen. And above all, keep risk management at the forefront rather than just blindly chasing profits.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict

P.S. I’ve been tracking four specific catalysts coming into this year. Each is offering a vital warning sign, and the fact that they are all hitting at once is big cause for concern.

These four catalysts have only aligned twice in the last 50 or so years. Each time, the market failed to make new highs for over a decade.

That’s why I’ve put together a briefing to explain what these catalysts are… and why we could be heading for a serious financial reckoning in 2026.

For all the details, simply go right here.