<p>The <a href="https://www.moneymetals.com/news/2025/09/17/cranking-up-the-inflation-machine-fed-delivers-rate-cut-004348">Federal Reserve opted to cut interest rates</a> at the September meeting, despite acknowledging “<em>inflation has moved up and remains somewhat elevated</em>.”</p>
<p>This is an odd move, and it reveals <a href="https://www.moneymetals.com/news/2025/01/12/trump-vs-powell-and-a-catch-22-003748">the Catch-22 facing the Fed</a>.</p>
<p>One can make a case for cutting rates given the softening labor market and the massive levels of debt. This economy is addicted to easy money and can’t run with even a normal interest rate environment. </p>
<p>However, one can also make the case that the central bank should be raising rates.</p>
<p>Jim Grant made that very case in an interview on CNBC just a few weeks before the Fed meeting.</p>
<p>Grant is the publisher of Grant's Interest Rate Observer and a well-respected financial analyst. </p>
<p>In the interview, Grant referenced former Federal Reserve Chairman William McChesney Martin, who once said it is the Fed’s job to "<em>take away the punch bowl just as the party gets going.</em>"</p>
<p>Grant said that the party has been going strong.</p>
<blockquote>
<p>“The financial party has been roaring, and you see all manner of symptoms, and data, and indices, from valuation to the return of the SPAC king with the little, tiny rug-pull stocks creeping out from under the carpet.” </p>
</blockquote>
<p>Grant also pointed out that “<em>the economy seems to be doing OK</em>.” Meanwhile, inflation is still “<em>problematicle</em>.”</p>
<p>In fact, <a href="https://www.moneymetals.com/news/2025/09/11/its-zombie-inflation-004332">the CPI jumped from 2.7 to 2.9 percent in August</a>, with the monthly price increase coming in at 0.4 percent. That annualized to a 4.8 percent annual CPI. Core CPI has been mired around 3 percent for well over a year.</p>
<blockquote>
<p>“I’m not sure that’s a compelling case for a cut. In fact, I doubt that.” </p>
</blockquote>
<div x-data=" item_id: undefined, view: null " x-html="view || 'Product-Random-Featured'" x-init="view = await (await fetch('/shortcodes/product/random/featured?category=all')).text()">!!–Product-Random-Featured-All–!!</div>
<p>Grant also pointed out something I’ve been hammering on for months. The Chicago Fed’s <a href="https://www.chicagofed.org/research/data/nfci/current-data">National Financial Conditions Index</a> reveals that monetary policy is already loose from a historical perspective. In fact, monetary policy wasn’t even tight at the peak of the hiking cycle.</p>
<p>Meanwhile, after dropping modestly during the hiking cycle, <a href="https://www.moneymetals.com/news/2025/06/30/money-supply-expansion-this-is-inflation-004158" rel="noreferrer">the money supply has been increasing for over a year</a>. This is, <a href="https://www.moneymetals.com/news/2024/01/12/common-definition-of-inflation-you-hear-today-is-wrong-government-propaganda-002925" rel="noreferrer">by definition</a>, inflation. </p>
<p>None of these factors argues for a rate cut.</p>
<p>Grant insisted that the case for a rate cut was “<em>not a foregone conclusion</em>” even though the markets were treating it as such. He said part of the reason that everybody assumed it was time to cut was “<em>the political narrative created and marketed so fervently by the White House</em>.” </p>
<blockquote>
<p>“I think he [Jerome Powell] would be superhuman if he were not affected to a degree by the voices surrounding him. Like cannon fire, ‘You must cut!’ It’s quite an extraordinary thing.”</p>
</blockquote>
<p>Grant said the pressure from the president wasn’t unprecedented, noting President Andrew Jackson was just as “subtly abusive” toward Nicholas Biddle, who was president of the Second National Bank, a forerunner of the Fed.</p>
<p>Grant said the current political environment has created a “preference cascade” for lower interest rates worldwide. </p>
<blockquote>
<p>“I don’t think it’s necessarily advisable. But it is a thing.” </p>
</blockquote>
<p>Grant said that he thinks the case can be made for higher rates.</p>
<blockquote>
<p>“But, almost certainly, there will be some concession to the lower rate zeitgeist.” </p>
</blockquote>
<p>Grant was right. However, you can see that the central bank remains cautious in the dot plot projections that only anticipate one rate cut next year. </p>
<p><a href="https://www.moneymetals.com/news/2025/09/25/in-a-rare-moment-of-honesty-fed-chair-powell-admits-risk-004359" rel="noreferrer">Powell has also indicated that he’s aware of the risk</a>, no matter what the Fed does.. In an unusual moment of honesty, the Fed chair confessed that there is “<em>no risk-free path</em>” moving forward.</p>
<p>Although Powell didn’t use the word, he described a stagflationary setup, with deteriorating economic conditions reflected in the labor market, coupled with “somewhat elevated” inflation.</p>
<blockquote>
<p>“Near-term risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation. Two-sided risks mean that there is no risk-free path.”</p>
</blockquote>
<p>The Fed’s actions and messaging, and Grant’s assessment, both reveal that Powell & Company is walking a tightrope, and it would only take a little nudge for them to fall to one side or another.</p>
<h2>Watch the Interview</h2>
<p><iframe width="560" height="314" src="https://www.youtube.com/embed/m-DC9e0kyDI?si=IVXJcUuBtePWAtFV" allowfullscreen="allowfullscreen"></iframe></p>
