The Federal Open Market Committee (FOMC) released its latest monetary policy statement.  The Federal Reserve is maintaining its federal funds rate target in the range of 3.5% to 3.75%.  There were two dissenting votes by members who wanted to lower the rate by .25%.

Apparently, the Trump administration’s threat of indicting Jerome Powell wasn’t enough to make him do what they want.

It was already surprising in past meetings that the Fed was lowering interest rates and even returning to monetary inflation (although they refuse to call it QE) when the CPI numbers are still coming in near 3% annually.  The Fed’s target is supposed to be 2%, and it hasn’t been at 2% or lower in almost 5 years.

Perhaps this is one of the reasons that the Fed took a break from lowering its target interest rate.  Even though the inverted yield curve of 2023 and 2024 is a warning sign for a recession, the stubbornly high CPI numbers are the more immediate threat to the Fed.

It will put the Fed in a really bad position if interest rates are already really low, price inflation is still elevated, and we hit a recession.  Do they save the economy and risk losing the dollar?  They are already letting the dollar slip more than was probably planned.

For anyone who follows this stuff, you have to wonder if the Fed is just looking at its typical benchmarks, which are government statistics (unemployment, GDP, price inflation, etc.).

The Gold and Silver Signal

The dramatic rise in the price of gold and silver (in terms of dollars) is telling us something.  We just can’t exactly be sure of what, other than it being a warning sign for holders of U.S. dollars.

Maybe gold and silver are just joining the Everything Bubble.  They had to play catchup with stocks and Bitcoin.  Maybe everything will tank when the bubble pops.

But what if the bubble doesn’t pop much?  Or what if the bubble pops but gold and silver don’t go down with the ship?

Powell was asked about the rapid rise in gold and silver in his press conference.  While Powell admitted that they do monitor asset prices, he claims that the Fed isn’t losing any credibility because of asset price changes.  On the other hand, Powell is warning that the increasing national debt is unsustainable.

These things really go hand-in-hand though.  The Fed and Congress and many presidents are to blame for the weakening dollar.  The government runs up debt, and the Fed keeps monetizing much of it.  And when it isn’t monetizing debt, it stands ready to do so.

Gold and silver are sending a warning signal about this runaway spending and debt.  The prices, as determined by the market, are telling us to be careful of the U.S. dollar.

It doesn’t matter if it is foreign central banks buying gold or a lot of little investors.  (It is likely both driving prices higher.)  The major rise in prices is telling us not to trust the U.S. dollar.  It might no longer be a safe haven, given the path we are on.

You have to wonder if Powell and company are factoring the prices for gold and silver into their decision making.  It would be hard to believe that this isn’t a factor.

Nobody Seems to Care

The problem is that nobody seems to care.  For investors in gold, silver, and mining stocks, it is nice to get gains.  But I don’t want major gains at the expense of a civilized society.  I don’t want us to end up like some third-world country with massive inflation or hyperinflation.

Powell is correct that the rising debt is unsustainable, but he is one of the people helping to feed it.  If the Fed announced that it would no longer monetize any future debt, that would cause a major recession or depression.  However, it would also force Congress to drastically cut its spending.  Or maybe Trump would just indict all of the Fed members and announce that he is now overseeing monetary policy.

For the most part, a few people are celebrating the rise in gold and silver because they are profiting from it.  Most people are just ignoring it and pretending like it doesn’t matter.

Sure, it’s nice for those of us who have exposure to gold and silver and mining stocks.  Sure, it’s a bit of vindication for our past warnings.  But it is also a bit scary because it is a warning sign that things could go very wrong in the near future.

There is simply no will to cut federal spending.  DOGE ended up being a joke.  If it couldn’t be done this year, then it won’t be done until the laws of economics force it on us.  Public opinion is against the rising debt, but public opinion is also generally against cutting any major spending.