0:00 A new report says the Fed's key interest rate should be somewhere between three point seven-nine and six point zero-two percent.0:08 That is not a typo.0:09 And it is MILES away from current policy.0:11 In our last briefing, we touched on the headlines shaping America.0:16 Today, we're going deeper on the one force that quietly drives almost all of them: the Federal Reserve.0:22 And right now, the institution is at war with itself.0:26 The September meeting of the Federal Open Market Committee is coming up.0:30 This is where they set interest rate policy for the entire country.0:34 And heading into that meeting, two completely contradictory arguments have landed.0:40 They can’t both be right.0:41 First, you have the rule-followers.0:43 An analysis from the American Institute for Economic Research’s Sound Money Project is blunt.0:49 Their monetary rules—the Fed’s own guideposts—consistently show that policy is too loose.0:55 Way too loose.0:56 They argue the federal funds rate needs to be, at minimum, three point seven-nine percent.1:02 The high end of their models puts it at over SIX percent.1:05 This isn't just an academic exercise.1:08 This is a direct challenge to the Fed's credibility.1:11 The argument is that for months, the rules have been screaming for more restrictive policy.1:17 For higher rates.1:18 And for months, the Fed has hesitated.1:20 So this September meeting is being framed as a first major test for Fed Chair Kevin Warsh.1:26 Will the Fed follow its own rules?1:28 Or will it find a reason not to?1:30 This camp says the problem is a lack of discipline.1:33 They believe the economy is overheated, and it’s the Fed’s job to cool it down, no matter how much it stings in the short term.1:41 It's a call for tough medicine.1:43 Then there’s the other side.1:45 And they say that tough medicine would be a poison.1:48 A competing analysis calls a September rate hike a “fool’s errand.” A complete mistake.1:54 This argument says the people demanding a rate hike are misdiagnosing the entire problem.2:00 They claim inflation is NOT being driven by an overheated American economy.2:04 It’s being driven by external supply shocks.2:07 Specifically, conflict in the Middle East disrupting energy and fertilizer markets.2:12 Here’s the core of their point.2:14 A rate hike is a tool you use to reduce demand.2:17 It makes borrowing money more expensive, so people and companies spend less, and the economy cools off.2:24 But that only works if the problem is TOO MUCH demand.2:27 It does nothing to fix a supply chain that’s broken.2:31 It doesn't drill for more oil.2:33 It doesn't produce more fertilizer.2:35 So, hiking rates now, they argue, would be like putting a cast on the wrong leg.2:40 It would inflict pain on American businesses and workers without solving the root cause of inflation.2:46 It would risk tipping the economy into a recession for NO good reason.2:51 This side also notes the political dimension.2:54 One analyst points out that Fed Chair Warsh is understood to be reasonably close with President Trump.3:00 And the President wants a strong economy, especially with midterm elections on the horizon.3:06 A rate hike is not that.3:07 So here’s the situation.3:09 The most powerful economic body in the world is caught between two stories.3:14 One story says the problem is internal.3:16 A lack of discipline, a failure to follow the rules, an economy that needs to be reined in.3:22 The prescription is a painful but necessary rate hike.3:25 The other story says the problem is external.3:28 A global supply shock, a geopolitical crisis that the Fed is powerless to solve.3:33 The prescription is to hold steady, to avoid making a bad situation worse by kneecapping the domestic economy.3:40 The September meeting is no longer just about adjusting a number.3:45 It’s about which of these two realities the Federal Reserve chooses to believe in.3:50 Every economic headline you read, from the price of gas to the strength of the housing market, hangs on this decision.3:57 Because what the Fed does next won't just be an economic act.4:01 It will be a statement of belief.4:03 And it will tell you exactly who they think needs to pay the price.
