Glen Biegel: Real Fed fight boils down to orthodoxy vs. economic growth

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By GLEN BIEGEL

The surface argument between the Federal Reserve and the president appears to revolve around whether we should keep the current fed rate to reduce demand, free up supply, and thereby keep inflation in check. 

Like a cancer treatment, we administer “rate poison” to the economy, the inflation cells consume the poisonous Fed rates, the economy gets a little sick, but the patient lives after the recession. Dramatic Federal Reserve rate rises are followed by recessions when they are a response to bad policies, like in the housing crisis of 2008 and the monetary crisis in 2022/3.  The Fed believes tariffs are a policy crisis in 2025 and is moving the US into recession to prove it. 

This is a fair review of the current standoff between Fed Chairman Jerome Powell and President Donald Trump, but there are much larger forces at work and much more at stake in the Powell/Trump rate scuffle. 

Is the Federal Open Market Committee independent? 

No. The Federal Open Market Committee’s independence cannot be maintained if it stands against policy. If you are for one policy and against another, then you are a de facto partisan actor in that policy fight. The Fed has labeled potential inflation resulting from tariffs as something that requires monetary policy to address, or, more accurately, undermine, and is therefore not independent of the tariff policy issue.

Can the Fed affect tariff inflation through monetary policy? 

No. Businesses will adjust to higher costs or move supply chains to rebalance the cost of materials.  Consumers will shift demand to account for the higher prices.  Nothing in the Fed’s tools can affect that process.  Since nothing can affect the higher costs of materials or goods from tariffs, the Fed has no business including tariff costs regardless of whether they do or don’t register in overall CPI or PPI inflation.  

Let’s review the Federal Open Market Committee tariff monetary policy from two vantage points, one where tariff inflation is offset by other larger factors like energy or AI.  In other words, tariffs always cause inflation but is it likely that other policy decisions can offset the costs of tariffs, also known as consumption taxes on foreign goods and materials.  The other scenario is where tariffs register measurable, one-time (aka transitory) inflation in the economy.   

In the first case, if tariffs are offset by other cost factors like energy, transportation or AI, then they will not register as topline inflation and they are not a policy that the Fed needs to try to offset with higher rates, especially rates high enough to force a recession. 

If tariffs are a transitory, one-time cost of doing business that is likely to moderate as supply chains and efficiencies are found, then they are also not something the Fed should try to offset with higher rates, especially rates high enough to force a recession. 

Can the Federal Open Market Committee’s models accommodate the growth agenda of Trump? 

Maybe, but not currently. Since Trump’s trade negotiations require trillions in new investment, production and new projects in the US to provide energy, production capacity and military support for countries around the world, the FOMC policy must be recalibrated to accommodate a 4 to 5% annual growth in the US economy for the next several years.  FOMC models appear to be calibrated to 1% to 1.5% growth.  

Can the models be changed, and who would lead them to do that? The EPA regulatory changes alone can result in a .3% increase in GDP each year. How will building, energy and mining projects happen with borrowing rates sky high? The agreement to spend 5% of GDP by NATO countries would also yield an almost 2% increase in GDP for the US.

What’s really going on between Powell and Trump?

Underlying the Trump/Powell clash of titans is a deeper debate about Federal Reserve Rate orthodoxy. Specifically, are increases in the fed rate in and of themselves inflationary or deflationary.  Orthodoxy says that the economy requires high rates to force a reduction in inflation.  The economy will not self-correct with lowered rates. 

The conundrum is this: If the Fed reduces rates now, while inflation is above 2%, and inflation decreases, it will call into question decades of scripture about the tightening and loosening of monetary policy by the Fed and may force a rewrite of every textbookin print for economics.   

The concern is simply this: If the Federal Open Market Committee did lower rates and inflation came down, it would destroy the guiding principles of the Fed that they have doggedly followed for 50 years. At stake in the current fed decision is something much more essential than the argument between Powell and Trump, even more important than the independence of the Fed. 

What is at stake if inflation falls as they lower the Fed rate is nothing less than orthodoxy, and that is why the Fed is resisting the clear indicators that their crisis rates are leading the US into recession and preventing the massive growth needed to fulfill Trump’s trade and America-First agenda.

Glen Biegel is a technology security professional, Catholic father of nine, husband to a saint, and politically active conservative.

16 COMMENTS

    • If by ‘inflated money’ you mean money after inflation has occurred, then no. Considering all the harm that inflation causes, it is far worse for the average family with kids to have inflation than any other factor, except a job loss. Not having a job is worse, but inflation is terrible.

  1. Great article, Glen. But isn’t Fed Chair Jerome Powell acting more like the current rate struggle is political rather than economic? BTW, Powell is not an economist; he is a lawyer which may be part of the problem. The Fed’s failure to reduce interest rates is causing a huge downturn in housing sales across the nation. People seem to be sitting on the sidelines waiting for mortgage rates to go down. The rate for a conventional loan averages 8% across the nation. It seems as if Powell can control the success of President Trump’s domestic agenda.

    • I think you are partially correct that this is a surface-level political issue, but I believe orthodoxy and faith in the ‘raise interest rates to lower inflation’ equation are what are ultimately at stake. If the Fed were merely acting politically, it would immediately undermine its credibility, and we would have to reconstruct a monetary control system in short order. The Fed has a good chance of survival with Waller leading, but it will have to develop modern guidance for its policy decisions. The ‘Volker Shock’ theory from 1980 is demonstrably false for the current economy and balance of powers.

  2. How dare Powell not do what Trump tells him to do! As a matter of fact, every single person on the planet should do whatever Daddy tellls them to do, right?

    • Powell is costing the economy over a trillion dollars by his ill conceived policies. Maybe though we should follow the orange man bad mantra. After all, what is a couple million jobs between friends. I hope you lead nothing more than your own life.

      • You sure are thin skinned. I’m sorry if my comments offended you princess. Perhaps your savior Trump
        will give you an indulgence. After all, you clearly think he can do no wrong.

        The fact that you feel the need to respond to so many comments to
        your article is very telling.

    • Yes, clearly if Trump said it, it must be true. He only tells the truth, always. The fed chair must be part of the deep radical Marxist extreme soviet deep state left if he disagrees with Trump. The fact that entire country is not bowing to the smartest man to ever live is nothing short of treason. The fed just wants America to fail, that is obvious.

      This article is bending over backwards with logical fallacies to make Trump and his “America First” agenda look legitimate.

      • Thank you for being so specific. It makes me much more likely to trust your judgement. After all, I only did about 100 hours of study on this matter over 2 MBA semesters.

  3. The US government seized privately held gold from its citizens on May 1, 1933, under Executive Order 6102 signed by President Franklin D. Roosevelt. This order required citizens to turn in their gold coins, gold bullion, and gold certificates to the Federal Reserve in exchange for paper money.
    Gold was 20$ an ounce. If your grandparents left you 20$ you couldn’t buy lunch today but if they had left you an ounce of gold…. That was entirely the point of making sure Americans no longer had a way around Usury. The fed IS privately owned and our monetary system is not a sophisticated system of rules and evidence based metrics, it’s pure sophistry trying to hide the fact that it is the greatest thief of all time.

  4. Artificially low interest rates and mass injections of liquidity doled out to the big guys forced the average person to put all their savings into the market which was a major driver of the grossly inflated market we have now. We only see p/e ratios like we have now before a major downturn. How much further it can go is anybodies’ guess, but it’s looking like a rough ride sooner or later. Personally, I vote for sooner as the longer you wait, the worse it gets. DJT predicted a rough time for a while due to to his plans,but now he chickens out on the plan. Bummer.

  5. Here’s a ChatGPT (AI) Response from the perspective of Rand or Ron Paul.

    Response to Glen Biegel’s Commentary on the Federal Reserve
    By a supporter of sound money and limited government

    Glen Biegel raises important questions about the Federal Reserve’s role in our economy and its entanglement in political decision-making. As someone who has long questioned the very legitimacy and structure of the Federal Reserve System, I find his points both timely and revealing. However, I would go even further: the real problem isn’t just that the Fed is misapplying its powers—it’s that it has too much power in the first place.

    For decades, the Federal Reserve has acted as an unelected economic central planner. It manipulates interest rates, inflates the money supply, and distorts the natural signals of the free market—all under the guise of stabilizing prices and maximizing employment. But history shows us that the Fed’s interventions cause the very booms and busts it claims to prevent. The 2008 housing crisis and the inflationary surge after the COVID-era money printing are just two recent examples of this long-running damage.

    The Fed Is Not Independent—And Shouldn’t Exist in This Form

    Mr. Biegel is right: the Fed is not independent. It picks winners and losers based on its economic worldview, and those choices are inevitably political. Whether it’s raising rates to punish tariffs or keeping rates low to help government deficit spending, the Fed acts as a political actor cloaked in economic jargon.

    But the solution is not to make the Fed more favorable to any one administration—whether that’s Trump’s America-First agenda or any other. The solution is to end the Fed’s ability to centrally plan the economy altogether. Let interest rates be set by the free market, not by a committee behind closed doors.

    Tariffs, Growth, and the Illusion of Control

    The idea that the Fed can “guide” the economy through interest rate tweaks is part of the problem. Tariff policies, while flawed in some respects, are political decisions with national security and industrial goals. The Fed trying to counteract those decisions with monetary policy only increases volatility. But more importantly, the Fed should not be trying to “accommodate” any political agenda—whether globalist or nationalist.

    What we need is sound money, restrained government spending, and an end to deficit financing through monetary expansion. The Fed enables Congress’s addiction to debt by artificially suppressing interest rates and printing money. That’s why we see inflation eating away at middle-class savings while Wall Street and Washington benefit.

    Time to Audit—and Ultimately End—the Fed

    This is why I (and others like my son, Senator Rand Paul) have repeatedly called for a full audit of the Federal Reserve. Americans deserve to know who benefits from the Fed’s policies and why. And ultimately, we must have a serious national discussion about returning to a currency backed by real value—like gold—and a monetary system rooted in transparency, stability, and freedom.

    The clash between Trump and Powell is not just a political turf war—it’s a symptom of a larger illness: centralized economic control. Until we address the root problem, the boom-bust cycle, inflation, and political weaponization of monetary policy will continue.

    End the Fed. Restore sound money. Let freedom work.

  6. “First of all, Rand Paul shouldn’t even be on this stage” -2016 Republican presidential candidate Donald Trump

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