The U.S. Federal Reserve's policy toolkit is designed for broad economic problems, according to a commentary by Shelton Active Allocation Solutions published on ETFdb.com on November 4, 2026. When the economy slips into recession, the Fed can lower interest rates and add money to the financial system to stimulate growth.
When inflation runs too hot, it raises rates to slow demand and the pace of money growth. In the author's view, these tools work best when inflation is driven by demand. Today's inflation, the analysis argues, does not fit that pattern.
The Fed's preferred gauge, the Personal Consumption Expenditures (PCE) price index, rose 3.4% over the 12 months through August, while core PCE rose 3.0%, both well above the Fed's 2% goal. The commentary notes that not all prices respond to monetary policy. Housing and health care reset slowly through leases and contracts, which keeps them sticky.
Cars and furniture, often bought on credit, respond to borrowing costs, and their prices are already flat to falling. Energy is the outlier. Gasoline rose 34.2% over the year, a period in which Middle East tensions pushed crude oil back above $100 a barrel.
"That is a supply problem, and the Fed has no tool for increasing energy flows or repairing damaged refineries," the authors write. The Fed raised its target range to 3.75% to 4.00% in September, its first hike since 2023, and most officials expect one more this year, the commentary states. The author acknowledges that higher rates can cool credit-driven demand but cannot produce additional barrels of oil.
Tightening into an energy shock, the analysis warns, risks slowing the parts of the economy already cooling while leaving the largest source of inflation untouched. Shelton Active Allocation Solutions does not expect the Fed's forecasted policy path to derail economic growth. If inflation makes no progress toward 2%, the Fed will likely increase rates further or at least hold off on cuts.
If energy prices ease, the Fed should respond as pressures ebb and attention returns to slower job growth. The authors contend that more direct remedies lie elsewhere, namely increasing the supply of gasoline, diesel, and heating oil, and reducing federal deficit spending. Relief in headline inflation, they conclude, will depend more on energy markets than on the Fed.
The piece is an opinion commentary from an investment manager, and its figures are presented as reported in the source. The source notes that its data has been prepared by Shelton Capital Management and has not been verified or audited by an independent accountant, and that its opinions and forecasts may not actually occur.
Source: etfdb.com