The market is pricing in AI euphoria but the inflation data is flashing some warning signs. Inflation forecast on Kalshi has now pushed up to 5.1%. This isn't the 9% nightmare we saw post-COVID that forced the Fed to hike rates to the fastest pace in 40 years. But it is 2.5x the Fed's target. The bull narrative on Wall Street right now is that this is temporary: Once the geopolitical noise settles, inflation comes back down to 2% and the Fed can cut. But there's a real scenario where inflation doesn't cooperate. If the headline number pushes above 3% or 4% and stays there, the Fed is stuck. They can't cut rates into an inflationary environment without risking a repeat of the mistakes that caused 2022. And the market, currently priced for AI-driven earnings growth and rate relief, would need to reprice. The setup is uncomfortable: - Corporate earnings have been strong - AI capex is real - The consumer hasn't broken But underneath all of it, you have an inflation rate that is not on a clean path back to target and a bond market that is starting to reflect that with the 10 year still elevated.