Why The Fed Can’t Fight Inflation Anymore

Hinzugefügt: 2026-05-10

[00:00:01]The Federal Reserve has been cutting rates while inflation has run hot for nearly two years.

[00:00:08]That is not the textbook. The textbook says you hike into rising prices and ease into a slowdown. You try to look unbothered while you do either one.

[00:00:18]Yet, since September of 2024, when Powell led with a 50 basis point cut rather than the customary 25, the central bank has done the opposite of what the playbook calls for.

[00:00:30]Inflation has been over the 2% target for five years running.

[00:00:34]Rather than pressing harder on the brake, monetary policy eased off it.

[00:00:40]That moment also kicked off one of the most extraordinary rallies in precious metals we've seen in decades. And the question worth asking, the one that explains the entire setup of the gold and silver markets right now, is why.

[00:01:10]The dual mandate is the place to begin.

[00:01:12]Congress gave the Federal Reserve two jobs: stable prices and maximum employment.

[00:01:18]Most of the time, those two priorities are roughly aligned and the central bank can pretend it's managing one number.

[00:01:25]But every so often, the two halves of the mandate point in opposite [music] directions and a choice has to be made.

[00:01:30]The 50 basis point cut in September of 2024 was [music] the choice. The Fed chose labor.

[00:01:37]It wasn't obvious at the time. Headline inflation was still printing above target. The unemployment rate looked tolerable.

[00:01:46]Yet, behind the data, something was breaking. Subsequent revisions to job growth came [music] in well below the original prints. Hiring was no longer keeping pace with population growth, let alone producing the [music] wage strength that would justify continued tightening.

[00:02:01]When Powell opened with 50 rather than 25, he was telling the market what the Fed could already see and what Wall Street had not yet recognized.

[00:02:11]The employment side of the mandate was [music] and remains the binding constraint.

[00:02:16]Gold figured it out almost immediately.

[00:02:19]Precious metals went on a tear that left most analysts forecasts looking like the work of an unenthusiastic intern.

[00:02:26]Now, consider where we are today. The bind has only tightened.

[00:02:31]Three new pressures have stacked on top of the original problem and any one of them would be enough to keep the Federal Reserve from hiking even with prices stubbornly above target.

[00:02:42]The first pressure is commercial real estate and from there it leaks directly into private credit.

[00:02:47]Office properties have been changing hands at discounts north of 90% in recent transactions. Lenders who've been extending and pretending and hoping for rates to fall and bail them out are running out of road.

[00:02:58]When those losses are forced into the open, banks tighten lending standards across the board.

[00:03:05]That matters for private credit because so much of private credit is itself bank financed. The same institutions writing CRE loans also provide the leverage that lets private credit funds deploy at scale.

[00:03:18]Tighter banks means tighter private credit and refinancings that should be routine begin to fail.

[00:03:25]Ares Capital recently wrote down three significant investments to zero. And Jamie Dimon has been telling anyone with a notebook that the problem in private credit is going to be worse than the [music] consensus believes.

[00:03:37]The Federal Reserve appears to agree.

[00:03:40]In recent weeks, Powell's team has twice sat down behind closed doors with the CEOs of systemically important banks asking them to disclose their precise exposure >> [music] >> to the private credit complex.

[00:03:54]The fact that the regulators have to ask should tell you something.

[00:03:59]This is an opaque market marked to model rather than to market and no one not even the people whose job it is to know is fully sure where the [music] risk lives.

[00:04:12]Private credit has quietly become the way mid-sized America raises capital.

[00:04:18]Going public is no longer an obvious choice.

[00:04:22]The cost runs north of $10 million for a billion dollar firm before you count the quarterly theater and the regulatory drag.

[00:04:29]In 1997, there were over 7,300 public [music] companies. Today, there are fewer than 4,000. Meanwhile, giants like Atheme and Medline have been financed in the shadows.

[00:04:42]When private credit catches a cold, those companies sneeze and the shift from publicly traded companies to private credit means that a problem in this sector could be contagious.

[00:04:53]The second pressure is in manufacturing.

[00:04:57]The ISM employment sub-index is one of the more reliable leading indicators in the American economy and inside that already leading data set, the employment component leads even further.

[00:05:08]By the time weakness shows up in services or in consumer spending, the factory floor has already laid its cards on the table months earlier.

[00:05:14]Right now, those cards are at recessionary levels.

[00:05:18]The only times the index has been substantially lower in the last 25 years were during COVID and the 2008 financial crisis.

[00:05:28]Businesses are front-loading inventory to get ahead of energy cost spikes the same way they front-loaded ahead of tariffs. Now, behavior like that is a tell.

[00:05:36]No one burns working capital stockpiling goods if they expect the storm to blow over quickly.

[00:05:43]Points to bigger problems ahead for Main Street.

[00:05:46]But there is a caveat.

[00:05:49]This could turn out to be an industrial recession that doesn't bleed into the broader economy.

[00:05:54]Combined with the credit side, however, the odds of clean containment look thinner than they did a quarter ago.

[00:06:01]The third pressure is energy.

[00:06:03]The Iran war has disrupted global oil supply at a moment when the world economy could not afford it. Energy is the upstream input to nearly everything that costs money, which means a sustained price increase passes through to gasoline, transport, food, and eventually core inflation.

[00:06:20]That is the inflationary horn of the dilemma. The Fed could, in theory, hike to address it. Hiking would also crater the labor market, accelerate the private credit unwind, and turn the industrial slowdown into something broader.

[00:06:33]So, the Fed does not hike.

[00:06:36]And there is an unofficial component to the calculus, and it deserves a sentence even though it doesn't appear in any congressional charter.

[00:06:44]The interest expense on the federal debt is becoming difficult to manage at current rates.

[00:06:50]Lower borrowing costs, paired with tolerated inflation, is, among other things, a way to keep the lights on in Washington.

[00:06:59]Call it the unwritten leg of the mandate.

[00:07:03]And this is the bind. One side of the framework is shouting about prices. The other is pleading for help.

[00:07:12]The Fed isn't asleep at the wheel. It is pinned.

[00:07:16]Which brings us to gold and silver.

[00:07:18]The reason precious metals have rallied, and the reason they look likely to keep going, is not mystical. It is real rates. When the central bank cannot hike to fight inflation because hiking would break the labor market and the credit market, real interest rates remain negative or pinned near zero even as nominal price pressures run hot.

[00:07:39]That is gold's home environment. And it's not a trade idea, it's gold's reason for being.

[00:07:46]Silver tells the same story with a slightly different rhythm.

[00:07:49]The white metal carries the monetary properties of its yellow cousin, but it is also industrial, solar, electronics, batteries, which means it carries some cycle baggage that gold does not.

[00:08:03]The pattern across recent decades has been familiar. Silver lags gold for a stretch then catches up violently when the monetary debasement narrative becomes the dominant story.

[00:08:13]And if you've been watching silver consolidate while gold ran, the catch-up phase has historically been worth waiting for. And we saw some of this when silver hit $120 per ounce, but that's still below the inflation-adjusted high of $200.

[00:08:30]We owe it to ourselves to mention what could derail the picture.

[00:08:36]If AI delivers the kind of productivity gains the optimist describe, growth could outrun the bind.

[00:08:44]If the situation with Iran resolves quickly and oil retreats, the inflationary horn cools.

[00:08:51]If private credit turns out to be better capitalized than the skeptics fear, the plumbing risk fades. None of that is impossible.

[00:08:59]The thing to notice though is that the precious metals case doesn't depend on any single one of those things going a particular way.

[00:09:07]It depends only on the Fed remaining constrained. And the past 18 months have already demonstrated that the Fed is, in fact, constrained.

[00:09:17]So here we are. Inflation above target for half a decade.

[00:09:21]The central bank cutting rather than hiking. Manufacturing in a quiet contraction.

[00:09:27]Private credit headed toward forced loss recognition. Energy at the mercy of a war with no clean resolution in sight.

[00:09:34]And gold having read the room earlier than the analyst community sitting near record highs with silver just behind.

[00:09:41]The financial plumbing of the United States is as a rule not a topic of great public entertainment. But the people who pay attention to it tend to be the same people who saw [music] what was coming in 2024 and who have been positioned ever since.

[00:09:57]That's all we have for you today. Please remember to like, subscribe, and share with a friend.

[00:10:03]Thanks for watching and we'll see you next time.