Rising Inflation vs. Cooling Jobs: The Fed’s Dilemma
Markets are currently pricing in six Federal Reserve rate cuts by the end of 2026. That’s a bold bet—and it shows just how delicate the Fed’s balancing act has become: support employment while keeping inflation in check. Historically, getting both right at the same time has proven extremely difficult.
Source: CME FedWatch
Even with a “perfect” Fed response, the markets are priced for perfection. Investors are assuming inflation will come down smoothly, economic growth will continue, and no major shocks will disrupt progress. That’s an optimistic outlook—and optimism can create risk.
At the same time, several emerging risks could push the U.S. economy toward stagflation in the next few years:
Political pressure and government spending. Stimulus packages and spending initiatives may stick around longer than expected, keeping inflation elevated.
AI and automation replacing jobs. Technology improves productivity but may reduce job opportunities or wage growth in certain sectors, creating uneven economic pressure.
Baby Boomer retirements. A large wave of retirees can create labor shortages, push wages higher, and slow productivity growth.
Supply chain disruptions and geopolitical tensions. Unexpected events can create bottlenecks and drive costs higher.
Energy price shocks. Volatile energy markets ripple through the economy, affecting nearly all sectors.
High debt loads. Consumers and corporations are carrying record levels of debt, reducing flexibility and amplifying vulnerabilities during downturns.
We believe volatility is not just possible—it’s inevitable. The real question is: how prepared are you for it?
Why Retirees Need a Plan for Market Volatility
Even if you believe, as I do, that the market will be higher over time, the path is unlikely to be smooth. Retirees face a unique challenge: they rely on portfolio withdrawals to fund living expenses, which makes them particularly vulnerable to simultaneous declines in both stocks and bonds—a scenario more likely in a stagflationary environment.
A carefully designed plan can help retirees:
Protect against major portfolio drawdowns
Maintain spending flexibility during turbulent markets
Avoid the need to sell assets at the worst possible time
Plan for unexpected inflation spikes
We believe that retirees—and anyone nearing retirement—need a preemptive, flexible strategy rather than reacting after volatility hits. This isn’t about timing the market; it’s about managing the risks you can control while staying invested for long-term growth.
Markets May Be Priced for Perfection, but You Don’t Have to Be
At Sevey Wealth, we focus on the risks that matter, helping clients build portfolios and withdrawal strategies that hold up under stress. We don’t sell products, we don’t manage assets for AUM fees, and we don’t force clients into cookie-cutter solutions. You always have the final say.
Even if the market ultimately moves higher—as history suggests—the journey is rarely smooth. Planning for volatility, stagflation risks, and simultaneous declines in stocks and bonds ensures that you’re not just reacting to the market, but proactively protecting your wealth and peace of mind.
Ask yourself today: do you have a plan in place if both stocks and bonds fall at the same time? If not, it’s time to create one.
