The Week in Review: October 19, 2026
Is Inflation Becoming Entrenched in the Economy?
Inflation has come down significantly from its recent highs, but returning to the Federal Reserve's 2% target has proven difficult. The longer inflation remains elevated, the greater the concern that higher prices become an accepted part of everyday economic decisions.
The Federal Reserve has two primary responsibilities, maintaining price stability and supporting maximum employment.
Its 2% inflation target, formally adopted in 2012, is intended to provide a modest cushion against deflation while keeping price increases predictable for consumers and businesses.
Even small differences in inflation can have a meaningful impact over time. Using the Rule of 72, prices would approximately double in:
· 36 years at 2% inflation
· 24 years at 3% inflation
· 18 years at 4% inflation
· 14 years at 5% inflation
· 10 years at 7% inflation
For someone planning for a retirement that could span 25 or 30 years, maintaining purchasing power is the most important issue.
Why Persistent Inflation Matters
According to the Bureau of Labor Statistics, consumer prices increased 3.7% over the 12 months ending in September. Using the Consumer Price Index as a measure, inflation has remained above 2% for 67 consecutive months, one of the longest stretches since 1965
The concern is that inflation can become self-reinforcing. Businesses anticipating higher costs may raise prices, workers may seek larger wage increases, and consumers may accelerate purchases to avoid future price increases. These behaviors can make inflation more difficult to control.
We saw the consequences of entrenched inflation in the early 1980s, when exceptionally high interest rates helped bring prices under control but also contributed to a severe recession. Today's environment is very different, but the historical lesson remains relevant.
What It Means for You
Higher interest rates can benefit savers through improved yields on cash and newly issued bonds. However, rising rates generally put downward pressure on existing bond prices and can create challenges for stock valuations.
For those approaching or living in retirement, inflation also affects how much income a portfolio needs to provide over time. A financial plan should account for rising living expenses, changing market conditions, and the flexibility to make adjustments along the way.
While inflation may not return to the Fed's target as quickly as hoped, the objective is not to predict every economic development. It is to maintain a thoughtful, diversified portfolio that supports your goals and maintains your purchasing power through different economic environments.
Market summary
TWO FOR THE ROAD
In the long run, corporate earnings and dividend yield drive stock prices. - The Economic Times, October 24, 2018
Despite significant changes in federal tax rates over the decades, federal tax collections have remained remarkably consistent as a percentage of the economy. This observation, sometimes called Hauser's Law, is supported by Congressional Budget Office data showing that federal revenues have averaged approximately 17.3% of GDP over the past 50 years. It is a reminder that higher tax rates do not necessarily translate into proportionately higher revenues. Economic growth, taxpayer behavior, and the structure of the tax system all influence how much the government ultimately collects.
I hope you have a great week!
Warmest Regards,
Bill Stordahl, CFP®
Managing Director
Stordahl Capital Management
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1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.