The Peter Zeihan Podcast Series The Federal Reserve's Dilemma || Peter Zeihan
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Sep 22, 2025 The Federal Reserve is caught in a catch-22, balancing the need to lower rates with rising costs from tariffs and a shrinking labor force. The impact of interest rates on growth and inflation reveals a tangled web of economic pressures. Historical attempts at fiscal cooperation are now hampered by a massive deficit, leaving the Fed with no easy solutions. Additionally, the governance challenges facing this quasi-independent institution complicate decision-making in such a volatile landscape.
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Fed Balances Growth Versus Inflation
- The Fed balances growth and inflation by adjusting interest rates to influence demand and cost of capital.
- That tradeoff is the core purpose of monetary policy and the Federal Reserve's mandate.
Policy Creates Conflicting Economic Signals
- White House policies like tariffs and anti-migration measures are simultaneously reducing growth and raising costs.
- Those policies create conflicting signals for the Fed by depressing consumption while driving inflation.
The Fed's Catch-22
- Tariffs and immigration restrictions raise production and labor costs while also slowing consumption, forcing the Fed into a catch-22.
- Lowering rates would spur growth but worsen price pressures; raising rates would restrain inflation but deepen the slowdown.