In an article I wrote in October 2024, titled Milton Warned Us… Inflation Is Far From Dead, I argued that the official Consumer Price Index (CPI) understates true inflation and that gold serves as a more reliable gauge of long-term price pressures than the Federal Reserve’s 2% target. I concluded with a stark warning: “A 2% inflation rate forever is a dangerous fantasy you cannot afford to believe in.” Nearly a year later, that caution feels increasingly urgent. Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation metric, remains persistently above target, registering 2.9% year-over-year in July 2025, with nowcasts for August projecting it will hold around 2.8% to 2.9%. When smoothed over a five-year basis, core PCE reflects price advances not seen since the late 1960s or early 1970s, a period of economic turbulence and policy missteps that paved the way for the stagflation of the following decade.
As of September 10, 2025, the 10-year breakeven inflation rate, a market-based measure of expected average inflation over the next decade, stands at approximately 2.36%, signaling traders’ outlook on future price pressures. Although above the Fed’s target, in our view, this figure reflects a form of recency bias. It aligns with the upper range of inflation expectations from much of the 2010s and parts of the 2000s, before the pandemic reshaped global economics. It suggests markets still trust the Fed to anchor inflation near 2% over the long term. However, we believe the likelihood of the Fed failing to achieve this is now as high as it was in the late 1960s, a risk not fully reflected in current asset valuations.
The first half of the 2020s has marked a sharp break from the low inflation era that preceded it. This decade, average year-over-year CPI has reached 4.4%, while core PCE has averaged 3.62%, representing increases of 2.6% and 1.59%, respectively, compared to the five years before the decade began. Based solely on inflation metrics, we are navigating uncharted territory. Fiscal policy paints a similar picture. The U.S. has recorded an average budget deficit of 8.32% of GDP this decade, compared to just 3.3% from 2015 to 2020, raising concerns about unsustainable spending. Since 2020, public debt has surged by approximately 61%, outpacing nominal GDP growth of 38% through Q2 2025. Meanwhile, the money supply (M2) has grown by about 43% over the same period, despite aggressive rate hikes, adding liquidity that could fuel future price pressures.
Beyond these macroeconomic shifts, structural forces are likely to drive prices higher. Mass deportations, if implemented, could tighten labor markets and increase wages in sectors like agriculture and construction, while disrupting new home building amid already constrained housing supplies. Reshoring efforts, designed to bring manufacturing back to the U.S., may result in less efficient supply chains and heightened labor market competition, elevating costs. The intensifying AI race will further strain commodities, requiring significant investments in energy, infrastructure, and materials such as rare earths, metals, and semiconductors.
Individually, these factors might be manageable with prudent oversight from the Fed and government. Our concern, however, centers on the changing actors and the evolving ideologies shaping their decisions. By mid-2026, just eight months from now, the Federal Reserve’s Board of Governors could look significantly different under President Trump’s influence. Trump has indicated plans to appoint governors who favor aggressive rate cuts, a move that could offer short-term relief given softening labor data but risks entrenching higher inflation over time.
The policy debate is already evolving. In the coming months, discussions will shift from whether rates should remain restrictive or neutral to whether they should become outright accommodative, a stance that naturally elevates inflation expectations. More significantly, this new Fed appears to be moving toward forward-looking decision-making, departing from backward-looking frameworks like the Taylor Rule that have long guided policy. Interviews and statements from key Trump allies, such as Stephen Miran, nominated for a Fed governor role, and Treasury Secretary Scott Bessent, highlight this shift. Miran has advocated for structural reforms emphasizing supply-side liberalization to address inflation, stating that “inflation is under control” with “plenty of disinflation in the pipeline.” Bessent, in a recent Wall Street Journal op-ed, called for a comprehensive review of the Fed’s operations, criticizing its “gain-of-function” monetary policy for mission creep and institutional bloat that undermines independence.
Many figures associated with this regime change have expressed skepticism about the 2% inflation target or openly support a higher one. Underlying these views is an unspoken reorientation of the Fed’s mandate, moving away from its statutory dual focus on stable prices and maximum employment toward policies that prioritize economic growth, potentially tolerating higher inflation to drive expansion.
These changes, rooted in frustrations with two decades of monetary policy, signal a clear escalation in risk against the current economic backdrop of rising deficits, deglobalization, and potential material shortages. If the evidence above does not persuade you of the dangers of higher inflation, consider this: incoming Fed officials like Miran and Shelton are relying on structural disinflation, asserting that pro-growth deregulation alone can keep prices in check without aggressive rate interventions. History suggests such optimism can falter amid fiscal extravagance.
I began by noting that inflation risks are underpriced in markets. Perhaps President Trump’s Fed will prove more rhetoric than action, delivering a more effective version of monetary policy. However, the possibility that counterintuitive policies, including lower rates, and looser fiscal constraints, could unleash higher levels of volatility around inflation cannot be dismissed. Investors and policymakers should brace for a world where 2% becomes a relic, not a reality.