If you assumed Wall Street would spend this week trapped between two walls of worry, the biggest rally in months probably comes as an instructive but welcome shock.

After all, we’re still braced for higher interest rates as the Fed moves to get inflation under control. War in Europe is unlikely to depress fuel prices.

Inflation now looks less “transitory” than inevitable for the foreseeable future. And in that light, the Fed is not the immediate threat we anticipated.

I think the Fed is now the market’s friend, one way or another. But let’s back up and really look at how Wall Street’s mood got so twisted around the fear factors.

Russia has been a problem for the market since early December, when troops started massing at the Ukrainian border. Investors initially discounted the threat, but found it harder to ignore as the weeks dragged on.

The real shadow on Wall Street, meanwhile, was the prospect of higher interest rates making richly valued stock prices unsustainable. In effect, the Fed was going to force an overheated market to cool off.

And every inflation report made it clearer that the Fed would need to act soon or admit that it had let prices get truly out of control. The pressure got more and more intense.

Tech stocks in particular felt the pain, with the NASDAQ rewinding all of the progress it made since May and briefly dipping to the edge of bear market territory.

So why are those same stocks rebounding so fast now?

Inflation Will Get More Intense

Russia is a leading energy exporter, keeping the lights on in Europe in particular. Ostracizing its trade relationships will only keep oil above $90 a barrel for the duration.

And with energy already contributing so much to ambient U.S. inflation, that means pain at the gas pump and high heating bills for us as well. That’s only going to drive the Fed to be more aggressive.

But here’s the thing: the Fed controls the money supply. They aren’t in the business of regulating the supply of commodities like oil and gas.

As we discovered in the 1970s, an oil shock is an external shock. After the OPEC embargo, consumer inflation didn’t drop below 5% a year until 1981.

I think that’s the world we live in. It means prices could theoretically double between now and 2030, even if Russian fuel comes back to the global market well before then.

Inflation is now out of the Fed’s control. And that means that once the Fed is satisfied that it has cleaned up the free money created in the pandemic, there’s no practical incentive to keep raising interest rates beyond that point.

Admittedly, it means inflation is back on the menu. I don’t know where the trend ends up, but suspect we’ll see prices climb at least 3% a year for the greater part of the decade.

Everyone’s investments will need to earn at least that rate of return simply to preserve existing purchasing power. To get ahead, you’ll need to chase bigger opportunities.

Picking the right opportunities will require skill and conviction. I don’t think settling for the index fund winners of the past will be enough.

The Fed Can’t Stop Innovation

But there will be big winners, especially among companies that can operate more efficiently and ultimately bring prices down. Productivity gains can do more than the Fed to keep inflation under control . . . particularly when it comes to commodity inflation.

I’m looking forward to it. And the silver lining, while not exactly bright, is clear: interest rates will only rise so far before the Fed gives up.

Maybe in a decade they’ll feel confident enough in the economy to deliver the tough love it takes to kill inflation for another long cycle.

But not now. They’ll clean up their free money and then we’ll see where oil prices are.

Most Americans of all political persuasions say sanctions against an aggressor are the right thing to do, even if they mean swallowing higher prices.

And innovative companies that can get us through this . . . like they did in the pandemic . . . will earn Wall Street’s continued applause.

The Fed is built into stock prices at this point. A lot of great stocks are down 50% or more even though they have spectacular growth curves ahead of them.

Investing in these companies at this point feels a little like buying Amazon or Apple in 2002 or even Alphabet in 2004. They’re a lot closer to the beginning of their journey to global domination than the end.

You just have to take the long view in order to look past the current headlines and see through the present shocks. That’s what investing is all about.

This week, it took a war to remind Wall Street that the only thing that can stop real investors is the unknown. We didn’t know how persistent inflation would be or how aggressively the Fed would need to raise rates to fight it.

Now it’s fairly certain that inflation will indeed be more than transitory. This is going to be an inflationary decade unless corporate innovation unlocks big improvements in productivity a lot faster than anyone expects.

That’s a good thing. And if innovation falters, the Fed isn’t going to raise rates to unsustainable levels in order to achieve an impossible goal.

Remember, the current Fed governors have already opened the door to 7% inflationary spurts without lifting a finger. Their real priority is making sure the economy keeps growing and people keep their jobs.

Brace for pain at the pump in the meantime. One way or another, this will hurt. But it won’t be as fatal as some investors believed.