A Vote of No Confidence! Are Markets Losing Faith in the Fed's Inflation Fight? -

A Vote of No Confidence! Are the Markets Losing Faith in the Fed's Inflation Fight?
Federal Reserve Chairman Kevin Warsh and his minions are talking tough on inflation. But they haven't done anything.
At the July Fed meeting, the central bank elected to hold rates steady for the sixth time, despite price inflation remaining persistently well above the stated 2 percent target. Based on the market reaction, investors are beginning to think the Fed is surrendering to inflation and will not raise rates again. 
In this week's Midweek Memo podcast, host Mike Maharrey discusses the dichotomy between the Fed's words and its actions, explains why the markets are right to lack confidence in the Fed, and outlines how a surrender to inflation will impact the precious metals markets. 
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Mike opens the show with a hypothetical scenario. 
<blockquote>
"What if I told you I was going to run a marathon? In fact, every time I see you, I talk about running this marathon. I show you my running shoes. I explain my training plan. I get a subscription to a running magazine. I buy running shorts. And yet, I never actually run. Would you believe I’m really running a marathon?
"Of course not. 
"In the immortal words of Toby Keith, you would need a little less talk and a lot more action before you would have any faith in my marathon ambitions, right?
"I listen to a podcast called Sportsday Tampa Bay regularly, and the host is fond of saying, “If you have audio and video, believe the video. In other words, believe the actions you see over the words people say.
"Since Kevin Warsh stepped into his new role as chairman of the Federal Reserve, he’s been talking tough, insisting the central bank will not tolerate price inflation running hotter than the mythical 2 percent target. He doubled down on that messaging after the July FOMC meeting, saying, “You’ve heard this before, but we will deliver price stability.”
"But what has the Fed actually done?
"Nothing.
"And the markets are already starting to lose faith in the Warsh-led central bank’s willingness to tackle the inflation problem."
</blockquote>
Last week, the Fed held its second FOMC meeting of the Kevin Warsh era. While it wasn't a foregone conclusion, the central bank held interest rates steady at between 3.5 and 3.75 percent, with three dissenting members voting for a quarter-point hike. 
<blockquote>
"In summary, the Federal Reserve is talking a lot about fighting inflation, but it isn't doing a lot to fight inflation."
</blockquote>
Mike pointed out that Warsh is clearly trying to put his stamp on the Fed. One of the big changes is the new Fed chair's unwillingness to signal the next move. 
<blockquote>
"He’s made it clear he will provide much less 'forward guidance' than Jerome Powell. In other words, he doesn’t want the central bank to signal its intentions. So far, he has stuck to that commitment. There was genuine uncertainty in the market as to what the Fed would do."
</blockquote>
Mike notes that markets aren't fans of uncertainty. 
<blockquote>
"Here’s the thing though. Even if you don’t provide clear forward guidance, the markets will concoct some. Markets are forward-thinking. So, if it’s not clear what’s going to happen, they’ll make something up and run with it."
</blockquote>
Of course, if they're wrong, that means there will have to be a sharp correction. That means increased volatility.
Mike covers some of the highlights from the meeting and Warsh's press conference, emphasizing the Fed's tough talk on inflation.
<blockquote>
"That all sounds great. Warsh comes off as a regular Paul Volker. But do you know what Volker did? He ran rates to 20 percent in 1980 to slay price inflation. Compare that to Warsh, who has raised rates – not at all."
</blockquote>
Mike reminds listeners that he's been skeptical of the Fed's ability to tackle inflation due to the Debt Black Hole dominating the economy. Now it appears the markets are beginning to agree. When the Fed announced it would hold rates steady, rates on the long end of the Treasury yield curve ticked up. 
<blockquote>
"Movement in Treasury yields indicates that investors don’t believe the central bank will follow through on its hawkish rhetoric."
</blockquote>
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In other words, the markets seem to be signaling they don't think the Fed is going to raise rates at all. Several mainstream analysts have pointed this out, including a former Fed employee who now works at Citigroup. 
<blockquote>
"He highlighted a problem and gave no strategy for solving it other than, 'I'm a hawk, trust me,' and the markets wanted more than that. I think part of it is if you lean too far into future hikes, then he's disappointing the White House. And it is a balancing act between Warsh the hawk, which he is, and trying to stay on sides relative to 1600 Pennsylvania Avenue."
</blockquote>
Mike also noted that Warsh has hinted that he might move the inflation goalposts. In other words, there is talk about changing the inflation target to make it easier to achieve. 
Mike summed up the situation using a quote from a Reuters report that said, "'The combination of Warsh's repeated assertions of the need to tame inflation with no action to move it toward the 2 percent target and a hint that the goalposts themselves may change' was behind the recent jump in yields on the long end of the curve."
How will this impact gold and silver?
Mike argues that a surrender to inflation is ultimately bullish for precious metals. 
<blockquote>
"While higher interest rates on the long end of the curve could be considered bearish (given that gold and silver are non-yielding assets), higher inflation is bullish because the metals are historically an inflation hedge."
</blockquote>
Mike also emphasizes that you need to pay attention to real interest rates, not just the nominal rates quoted on TV. 
<blockquote>
"The real interest rate is simply the stated rate you see on the news adjusted for price inflation. When you factor in real rates, it’s easy to see higher yields aren’t necessarily bearish for gold and silver. It may feel like you’re earning a good yield, but your gains are eaten up by inflation."
</blockquote>
Mike sums it up this way.
<blockquote>
"Summing it all up, Warsh will undoubtedly continue to talk tough on inflation. But remember, watch the video. It appears that’s exactly what the markets are doing."
</blockquote>
Mike wraps up the show explaining his earlier assertion that the central bank may move the goalposts and change its inflation target to make it easier to achieve. 
While inflation talk typically centers on the CPI, the Fed prefers the PCE. 
<blockquote>
"This metric is actually part of the GDP calculation. I wrote an article yesterday on the difference between the PCE and the CPI and why the Fed likes the PCE better. The short version is that two price inflation measures rely on significantly different methodological approaches, and central bankers prefer the PCE because it understates price inflation more than the CPI."
</blockquote>
Mike says this underscores the fact that inflation is the plan. 
<blockquote>
"And part of that plan is making you think it’s not that bad. The government needs constant money printing to facilitate the borrowing and spending. Big government grows on inflation. Even if Warsh gets inflation under control, that means your money is being devalued 2 percent per year. That’s more than 10 percent every five years. That’s the plan. And the reality will always be worse than they’re telling you because they’re calculating 'inflation' using formulas they can manipulate to their advantage. The bottom line is your money will be worth less than it is today. Period. So, you need to plan accordingly."
</blockquote>
Mike closes the show with a call to action. Call 800-800-1865 and talk with a Money Metals precious metals specialist today. The recent correction in gold prices provides a buying opportunity, but that window won't stay open forever. 
<h2>Articles Mentioned During the Show</h2>
<a href="https://www.moneymetals.com/news/2024/06/18/golds-role-as-an-inflation-hedge-in-the-21st-century-003263">Gold's Role as an Inflation Hedge in the 21st Century</a>
<a href="https://www.moneymetals.com/news/2026/08/04/what-is-the-pce-and-why-is-it-the-feds-favorite-inflation-gauge-005110">What Is the PCE and Why Is It the Fed's Favorite Inflation Gauge?</a>
<a href="https://www.moneymetals.com/price/what-happens-to-gold-prices-during-inflation">What Happens to Gold Prices During Inflation?</a>

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