Central Bank Control Is Breaking | Weekly Roundup
The hosts discuss the Fed's most divided meeting since 1992, with Powell's final press conference signaling no rate cuts in 2026 without a crisis. They analyze the Iranian oil crisis driving inflation fears, Japan's fiscal and monetary instability threatening a global carry trade unwind, and argue that a 1970s-style second inflation wave is effectively inevitable given current policy trajectories.
Summary
The episode opens with discussion of the Federal Reserve meeting, which saw the most dissents since 1992 — eight members supported holding rates while four dissented, with three of those dissents focused not on the rate decision itself but on the inclusion of an easing bias in the statement. The hosts note this reflects deep internal disagreement at the Fed, compounded by Jerome Powell stepping down as chair while retaining his governor seat, and incoming chair Kevin Warsh's known political inclinations. The hosts argue there is no credible path to rate cuts in 2026 absent a major crisis, and that the Treasury — not the Fed — now effectively controls monetary and fiscal policy direction. They also highlight that the Fed's balance sheet has been quietly growing since Q4 2025 due to repo market purchases, constituting de facto QE despite hawkish rhetoric.
The conversation shifts to macro themes around global bond yields, with UK, German, and Japanese 10-year yields all breaking out higher while US junk bond spreads remain surprisingly tight. The hosts frame this as a potential late-cycle dynamic where sovereign debt reprices ahead of corporate credit, analogous to 2022. They discuss the transition from a globalized, just-in-time economy to a deglobalized, fiscally-driven growth model that is structurally inflationary, and argue this shift favors hard assets and commodities over long-duration tech equities.
A significant portion of the episode is devoted to the Iran oil crisis and its downstream effects. Brent and WTI crude prices are breaking above $110, US gasoline prices are up over 33% year-to-date approaching 2022 highs, and commercial crude storage including the SPR is being drained. The hosts argue that the next major policy move from the Trump administration could be an export restriction or ban on crude or refined products — a politically motivated attempt to suppress domestic gasoline prices ahead of elections, potentially at the cost of disincentivizing new domestic production. They note the US economic surprise index is outperforming Europe's, partly due to US energy independence, but warn this advantage is diminishing as reserves deplete.
The hosts then deep-dive into Japan's fiscal and monetary crisis. Japan's debt-to-GDP stands at 230%, the BOJ's balance sheet equals 100% of GDP, the yen is approaching the critical 160 USDJPY level, Japanese inflation has surged above 5%, and the country imports 60% of its calories and 90% of its energy. The hosts argue the 160 level is unlikely to hold this time unlike prior defenses, because the commodity shock has fundamentally worsened Japan's position. They model out both scenarios — defending 160 weakens the dollar, which is inflationary and sends US bond yields higher; letting it breach strengthens the dollar and also sends global yields higher. Implied volatility on both yen and Japanese bonds sits at two-year lows, which the hosts view as a massive mispricing. They argue positioning short yen, short bonds, and short NASDAQ or Japanese equities is asymmetrically attractive on a 12-month horizon.
The episode closes with broader macro philosophy: the hosts argue a 1970s-style second inflation wave is baked in given wartime defense spending increases, re-accelerating wage growth from immigration reduction, persistent commodity supply shocks, and fiscal dominance over monetary policy. They note Scott Bessent's ironic position — having helped break the British pound in 1992 alongside Soros, he now sits in the seat of the institution being pressured by markets. The hosts conclude that hard assets, commodities, and gold are the appropriate portfolio anchors in this environment, with the only escape being a genuine AI-driven productivity miracle.
About this episode
Markets may be entering a volatile new regime where inflation, geopolitics, and policy fragmentation collide, challenging the stability investors have relied on for decades. This week, we break down the latest Fed meeting and what it signals about shifting power from central banks toward fiscal and political forces shaping markets. We also explore rising inflation pressures, fiscal dominance, oil shocks, Japan’s growing instability, and why traditional macro playbooks may no longer apply. Enjoy! TIMESTAMPS: 00:00 Intro 03:08 Fed Dissents And Warsh 08:45 No Cuts Without Crisis 11:04 End Of The Powell Era 14:03 Ads (Fidelity Crypto) 15:01 Global Yields Break Higher 17:23 Inflationary Growth Regime 20:11 Oil Shock Hits Markets 23:25 Export Ban Risk 28:26 Late Cycle Boom 36:34 Japan’s Breaking Point 48:24 Carry Trade Lose Lose 53:08 The Yield Smile 57:05 Inflation Wave Baked In 01:00:25 Hard Assets Win FOLLOW THE SHOW › Forward Guidance – https://x.com/ForwardGuidance › Felix – https://x.com/fejau_inc › Quinn – https://x.com/qthomp › Tyler – https://x.com/Tyler_Neville › Telegram – https://t.me/+CAoZQpC-i6BjYTEx › Blockworks – https://x.com/Blockworks RESOURCES › Weekly Roundup Charts – https://drive.google.com/file/d/1pKJPVYyMItlwJcDPJiD2ST19OzeojYPB/view?usp=sharing SPONSORS › FIDELITY CRYPTO This episode is brought to you by Fidelity Crypto. Learn more at Fidelity.com/crypto Fidelity Crypto was built in-house with over a dozen years of crypto experience. So you can trade crypto and stocks in one place at Fidelity, backed by industry-leading security. Fidelity Crypto. We're here to help you feel good about investing in crypto. Crypto is offered by Fidelity Digital Assets, NA, is not insured by FDIC or SIPC and includes risk of complete loss. Securities offered by Fidelity Brokerage Services, LLC. Member NYSE, SIPC. https://www.fidelity.com/crypto/trading DISCLAIMER Nothing said on Forward Guidance is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only. Any views expressed are opinions, not financial advice. Hosts and guests may hold positions in the companies, funds, or projects discussed.
Key Insights
- The hosts argue the Fed meeting was the most divided since 1992, with four dissents — three of which were specifically against including an easing bias in the statement language rather than against the rate decision itself, reflecting a faction pushing toward a hiking bias.
- The speaker claims there is effectively no path to Fed rate cuts in 2026 without a full-blown economic crisis, given re-accelerating inflation driven by the Iran oil shock and commodity supply disruptions.
- One host argues the Fed's balance sheet has been quietly growing since Q4 2025 due to repo market purchases, constituting de facto QE that directly contradicts the Warsh-Moran-Bessent rhetoric of shrinking the Fed's financial market footprint.
- The hosts contend that Treasury Secretary Bessent now functionally controls both monetary and fiscal policy direction, with the Fed reduced to a secondary role, and that the next major tool will be balance sheet support for the long end of the curve rather than rate cuts.
- The speaker argues that rising oil prices above $110 and the oil-led inflation surge are classic late-cycle signals that historically break the back of credit markets, compress tech multiples, and end business cycles.
- The hosts claim the next major Trump policy move on energy is likely an export restriction or ban on crude or refined products, intended to suppress domestic gasoline prices politically, but at the cost of disincentivizing new US oil production and sending global Brent prices even higher.
- One host argues Japan's situation is at least twice as bad as the US on every fiscal and monetary metric — 230% debt-to-GDP, BOJ balance sheet at 100% of GDP, deeply negative real rates, 5%+ inflation, and 60% food and 90% energy import dependence — making the 160 USDJPY level fundamentally indefensible this time.
- The speaker frames yen implied volatility and Japanese bond volatility sitting at two-year lows as a massive mispricing, arguing that short yen, short bonds, and short NASDAQ or Japanese equities positions are asymmetrically attractive on a 12-month horizon regardless of near-term central bank interventions.
- The hosts argue that in a fiscally dominant world, the relevant framework is no longer the dollar smile but a 'yield smile' — where bond markets sell off in both overheating scenarios and recession scenarios, meaning there is no good outcome for sovereign bonds from here.
- One speaker claims a 1970s-style second inflation wave is effectively baked in, citing wartime defense spending increases, re-accelerating wages from immigration-driven labor supply decline, persistent commodity supply shocks, and fiscal policy running structurally hot.
- The hosts argue that Scott Bessent faces a lose-lose dynamic — weakening the dollar to support US asset prices is inflationary and drives long-end yields higher, while allowing the dollar to strengthen triggers carry trade unwinds and NASDAQ selloffs, both of which worsen the fiscal deficit.
- The speaker notes the irony that Bessent, who helped Soros break the British pound in 1992 by identifying that the economy was too weak to support high interest rates, now sits in the institutional seat being pressured by those same market dynamics at a global scale.
Topics
Transcript
This was the first Fed meeting since 1992 with this many dissents. There's really no path to the Fed cutting in 26 without a crisis. See oil taking off like this. It's generally a sign that this is the end of the cycle and oil and the rate of inflation change really breaks the back of everything. I think the next risk here is an export restriction control or ban of some sort. I am basically in the camp that a 1970s second inflation wave is effectively baked in the cake. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments in blockchain technology involve risk, terms, and conditions apply.…
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