How to Navigate a High Inflation Regime

December 18, 2025

AI Summary

5 min read

🎙️ The Voices & The Context

The Format: This duo-hosted podcast episode delivers a sharp, analytical deep-dive into inflation dynamics, blending economic data with forward-looking forecasts in a concise, professional dialogue format that ties directly to current market uncertainties.
The Format: A structured host discussion between Morgan Stanley experts, resembling a high-level strategy briefing rather than a casual chat or interview.
The Key Players:
- Andrew Sheet: Head of corporate credit research at Morgan Stanley, serving as the probing interviewer who frames questions around market reactions and policy shifts.
- Lisa Shallett: Chief Investment Officer for Morgan Stanley Wealth Management, the featured expert sharing insights from her new report on a potential "regime change" to higher inflation, bringing authoritative depth on structural drivers and investor strategies.

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What you'll learn

1 **(00:00) 🎙️ Introduction: Lisa Shallett**
2 **(01:15) Regime Change in Inflation: Demand and Supply Drivers**
3 **(02:37) Political Constraints on Anti-Inflation Policies**
4 **(03:41) Policy Becomes Constrained: Monetary and Fiscal Tools**
5 **(04:59) Energy and Tech Boom: AI Data Centers Fuel Inflation**
6 **(07:09) Investment Strategies for a New Inflationary Regime**
7 **(08:39) Counterpoint: Stable Long-Term Inflation Expectations**

+ Full timestamped outline available in the app

Show Notes

Our Head of Corporate Research Andrew Sheets and Chief Investment Officer for Morgan Stanley Wealth Management Lisa Shalett unpack what’s fueling persistent U.S. inflation and how investors could adjust their portfolios to this new landscape.

Read more insights from Morgan Stanley.

----- Transcript -----

Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.

Lisa Shalett: And I'm Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management.

Andrew Sheets: Today, is inflation really transitory or are we entering a new era where higher prices are the norm?

Andrew Sheets: It's Thursday, December 18th at 4pm in London.

Lisa Shalett: And it's 11am in New York.

Andrew Sheets: Lisa, it's great to talk to you again. And, you know, we're having this conversation in the aftermath of, kind of, an unusual dynamic in markets when it comes to inflation. Because inflation is still hovering around 3 percent. That's well above the Federal Reserve’s 2 percent target. And yet the Federal Reserve recently lowered interest rates again. Fiscal policy remains very stimulative, and I think there's this real question around whether inflation will moderate? Or whether we're going to see inflation be higher for longer. And you know, you are out with a new report touching on some of the issues behind this and why this might be a structural shift higher in inflation.

So, we'd love to get your thoughts on that, and we'll drill down into the various drivers as this conversation goes on.

Lisa Shalett: Thanks Andrew. And look, I think as we take a step back, and the reason we're calling this a regime change is because we see factors for inflation coming from both the demand side and the supply side. For example, on the demand side, the role of the infrastructure boom, the GenAI infrastructure boom, has become global. It has caused material appreciation of many commodities in 2025. We're seeing it obviously in some of the dynamics around precious metals. But we're also seeing it in industrial metals. Things like copper, things like nickel.

We're also seeing demand factors that may stem from the K-shaped economy. And the K-shaped economy, as we know, is really about this idea that the wealthiest folks are increasingly dominating consumption. And they are getting wealthy through financial asset inflation.

On the supply side, there are dynamics like immigration, dynamics around the housing market that we can talk about. But perhaps the wrapper around all of it is how policy is shifting – because increasingly policymakers are being constrained by very high lev