Don’t Strangle the Supply-Side Recovery The case for another Federal Reserve rate increase is crumbling. Gasoline prices are falling. Some DRAM spot prices are retreating. Two-year inflation breakevens have dropped 20 basis points in three days to 2.18%. Yet the tightening debate remains trapped in yesterday’s inflation. That is how policy mistakes happen. Tariffs and chip shortages raise the price level. They do not automatically create permanently higher inflation. Once those increases enter the comparison base, their contribution to annual inflation fades. A product that rises from $100 to $110 records ten percent inflation. If it stays at $110 a year later, inflation is zero. No rate increase is needed to make that arithmetic work. As 2026’s price spikes roll out of the annual comparison in 2027, base effects will pull inflation lower, without another Fed hike. Now add actual price declines. Gasoline and parts of the memory market are reversing earlier increases. Disinflation is not merely approaching. It is underway. The bigger story is productivity. Strong productivity growth, falling unit labour costs and a strong jobs market describe an economy expanding its capacity, not simply overheating. Businesses can produce more, support higher wages and contain costs simultaneously. These are the green shoots Trump’s supply-side agenda is designed to cultivate: stronger investment, greater productive capacity and non-inflationary growth. The test of that agenda is sustained improvement in output and costs, not whether every strong jobs report triggers another inflation scare. Employment growth is not the enemy of price stability. Weak productivity is. Treating every sign of economic strength as excessive demand risks strangling the supply expansion that makes growth sustainable. The bond market is delivering its own warning. Two-year breakevens approaching 2% undermine the argument that inflation expectations are becoming unmoored. In fact they’re negative for the year. The Fed must explain what another hike would fix. Higher borrowing costs cannot repeal tariffs or manufacture chips. They can crush investment just as productive capacity begins delivering results. Those demanding tighter policy carry the burden of proof. Do not punish stronger supply for looking like stronger demand.