The battle over America’s monetary future is about to begin. This week’s Congressional testimony by Federal Reserve Chairman Jerome Powell touched on inflation, interest rates, the Consumer Financial Protection Bureau, and cryptocurrency. But beneath the standard Federal Reserve script lies a more critical issue: the entire model of American central banking is fundamentally broken.
Powell insists there’s no hurry to cut interest rates, claiming inflation is under control. But the reality is stark: the Fed is stoking inflation without even knowing it. The proof is in the market signals they’re choosing to ignore – commodity prices soaring over 20% and gold approaching $3,000 an ounce.
What Powell and his colleagues keep missing is elegantly simple: there are two distinct types of inflation. The first is non-monetary—think of the bird flu’s impact on egg prices. No amount of interest rate manipulation will produce more chickens. The second, and more crucial type, is monetary inflation—the traditional kind that results from debasing our currency, usually by creating too much of it.
The smoking gun of the Fed’s current policy failure is hiding in plain sight. Remember, while they fixate on lagging indicators, two critical market signals are flashing red: commodity prices have surged over 20%, and gold is approaching $3,000 an ounce. These aren’t random numbers—they’re the market’s way of telling us the dollar is weakening, even if it appears strong compared to other failing currencies. It’s like having a .200 hitter leading the baseball league—technically first place, but nothing to celebrate.
At the heart of this misguided approach lies the Phillips Curve, an economic theory from the 1950s suggesting a trade-off between inflation and unemployment. According to this view, you can’t have low unemployment without high inflation, or low inflation without high unemployment. Yet reality has thoroughly debunked this theory—we’ve recently experienced periods of both low unemployment and high inflation, something the Phillips Curve said was impossible.
The solution is remarkably straightforward: instead of trying to micromanage the economy, the Fed should have one primary focus: maintaining a stable value for the dollar. When Alan Greenspan ran the Fed in the 1990s, he followed gold and commodity prices as key indicators, and it worked brilliantly. For some inexplicable reason, he abandoned this approach in the early 2000s, and we’ve been paying the price ever since.
A showdown between the White House and the Federal Reserve isn’t just likely—it’s inevitable. And contrary to popular belief, the President Trump holds more cards than many realize. The Fed isn’t a fourth branch of government, despite its pretensions. It’s a creature of Congress, and history shows that in direct confrontations with the White House, the Fed ultimately yields. Just look at the late 1940s and early 1950s, when a similar power struggle led to the Treasury-Fed Accord of 1951.
Just to be clear — and it will be clear — investors need to prepare for the turbulence ahead. When it becomes clear that inflation hasn’t been conquered—and it will—markets will initially react with alarm at what they’ll perceive as a battle between an “inflation-happy” White House and the “responsible” Federal Reserve. But this surface-level drama misses the real story: we’re not just debating interest rate decisions, we’re questioning the fundamental operating model of our central bank.
The path forward is evident: the Fed must abandon its role as an economic puppet master and return to its proper function as a guardian of currency stability. This means monitoring real market signals—commodity prices and gold—rather than trying to fine-tune the economy through interest rate manipulation. For those who claim this is too simple, I remind them that complexity often masks incompetence. The Fed’s current approach has given us boom-bust cycles, currency instability, and persistent inflation. It’s time for a change.
The stakes couldn’t be higher. Our prosperity, our savings, and our economic freedom hang in the balance. The Fed’s fatal flaw isn’t just a technical error—it’s a fundamental misunderstanding of how free markets work. And until we correct this error, we’ll continue to suffer the consequences of their misguided policies.
