Stephen Dopp welcomes back recurring guest Tim Paulson for a reaction to last week’s Federal Reserve pause, recorded on midterm Election Day. Mr. Paulson thinks the federal funds rate gets far too much attention. A December hike has been quietly telegraphed but won’t be the start of a major cycle, as Fed Chairman Kevin Warsh only wants to move from slightly accommodative to slightly restrictive. He reads the two dissents at the last FOMC meeting as a sign of a Fed working the way it used to work, now that forward guidance is fading and markets have to price risk like grown-ups again. The inflation worry, in his view, is sticky wage gains in core gauges, a $2 trillion deficit keeping money in everyone’s hands and an AI buildout that is crowding out demand for chips and energy.

On AI, Mr. Paulson says the dot-com era comparison breaks down because today’s companies have real earnings and real demand. It still feels like early innings, and a megacap tech stock’s 12% one-day drop looks more like a twitchy market than a savage earnings report. He also argues 5% long-term yields are historically normal, and that what isn’t normal is a deficit so large that interest costs now exceed military spending. On the midterms, he doesn’t hedge: “If there’s anything that’s more overhyped than the fed funds rate, it’s election outcomes.” Whichever party wins, the fiscal burden won’t change, because both are fighting over who can put a foot on the spending accelerator.