Darius Dale joined Anthony Pompliano to explain why investors must prepare for a historic shift in US monetary policy. In their wide-ranging discussion, Darius laid out how regime change at the Federal Reserve, the realities of fiscal dominance, and the persistence of higher inflation are reshaping the investment landscape. He argued that clinging to outdated assumptions like the Fed’s 2% inflation target risks leaving portfolios on the wrong side of market risk, while the administration is openly pursuing levers to engineer an economic boom.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) Fed Regime Change Is Coming—and It’s Structurally Dovish
Investors are likely headed for Regime Change at the Fed, with a likely majority of Trump appointees on the Fed Board of Governors potentially as early as February when regional Fed Bank presidents are ratified. If so, those who don’t align with the administration’s policy intentions are likely to be replaced. The destination is a more dovish Fed aligned with the administration’s push to “engineer an economic boom,” and investors should not fight this in their portfolios.
Key Takeaway: Expect a dovish pivot consistent with Paradigm C— a structurally bullish setup for growth over at least a 12-18 month time horizon.
2) Fiscal Dominance Demands Monetary Debasement
Darius argues that the U.S. is in a fiscal dominance regime, with the government needing to finance massive deficits and roll over trillions in debt. In his words: “When you have fiscal dominance you tend to see financial repression and monetary debasement to offset that because otherwise you’re just going to run out of money.” He believes the Fed’s role should be to make this easier for the economy to digest, not to enforce an outdated 2% inflation target.
Key Takeaway: Fiscal dominance means durable financial repression and monetary debasement are inevitable. Investor portfolios must feature assets that benefit from these tailwinds.
3) The Fed Must Adjust From Their Arbitrary 2% Inflation Target
In the discussion, Darius warns that clinging to an arbitrary 2% target risks pushing the economy toward recession. He cites the Fed’s Survey of Consumer Finances (1-yr 3.1%, 3-yr 3.0%, 5-yr 2.9%), the 5y5y inflation swap ~2.5%, and 42 Macro’s Secular Inflation Model—as all being above The Fed’s “arbitrary” 2% target. As he urges, “Our model is saying inflation is 3%. The Fed’s own survey is saying inflation is 3%. Yet the Fed wants 2% inflation.”
Key Takeaway: The Fed’s 2% target is outdated; acknowledging a ~3% equilibrium would produce better outcomes and align policy with today’s rapidly evolving economy.
Final Thought: “KISS” Your Portfolio Before It’s Too Late
The White House is moving aggressively to reshape the Federal Reserve, fiscal dominance is creating the conditions for durable financial repression and monetary debasement, and the U.S. economy is anchored closer to 3% inflation than the Fed’s outdated 2% target. Investors who ignore these signals risk being left behind by markets that are already adjusting to the new regime.
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42
