The other fight

America's central bank, the Federal Reserve, concluded its latest two-day meeting with absolutely no surprise. It did what the markets expected and left the federal funds (its interest) rates at 3.5%-3.75%.The gold price had a weekly drop of almost 11% in all major currencies, yet the reasons for holding and using gold did not change. Equities dropped too as did government bonds. Borrowing costs for the UK are now close to their highest level since the dark days of 2008. The Bank of England (BoE) decided to hold interest rates at 3.75%.

"Markets are starting to price in a protracted energy shock. This is starting to feed through to longer-term inflation expectations. That will make central banks very uncomfortable" was the view of the global head of rates at Vanguard. The fall-out in US equities was much less. The BoE said inflation could accelerate to 3.5% towards the end of 2026.

Until the recent war in the Middle East, hopes had been that 2026 would continue the pattern of 2025, when rates were cut three times. Last December the Fed forecast that it would cut rates once this year, and forecast that core inflation (excluding food and energy) would fall to 2.5% by the end of this year. But January's core inflation was 3.1%, the biggest rise in more than two years. One Fed governor, Christopher Waller - appointed by President Trump in 2020 - recently gave a TV interview in which he said that inflation is heading back to the Fed's target of 2%/year, and the conflict in Iran was only a temporary disruption.

The core inflation rate dropped to 2.5% in February. But with retail gas pump prices now back at the level they achieved in October 2023 the temporary might be longer than hoped.

Difficult choices

The Fed has a dual mandate - to achieve maximum employment and price stability. Its inflation target is to pin annualized price increases to 2%. Like most other economists, we believe the Middle East war - triggering what the International Energy Agency has called the "largest supply disruption in the history of the global oil market" - will increase inflation, but by how much it's too soon to say.

About 10% of global oil consumption is currently off the market. When crude oil price rise around $10/barrel, that leads to a decrease in global oil consumption of around 1%. Slower economic growth is inevitable. Many countries are at risk of higher food prices, thanks to the lower fertilizer exports from the region.

The Federal Open Market Committee (FOMC) faced perhaps its most difficult decision in recent times when it chose to leave the federal funds rate where it is. Higher rates, which would be understandable if the inflationary impulse looked long-lasting - if the conflict is not over quickly - would risk exacerbating America's economic slowdown. A rate cut on the other hand might coincide with a serious inflationary spike.

At the same time America's economy is looking less vigorous. Its Gross Domestic Product (GDP) growth was just 0.7% in the final quarter of 2025. Expectations that its GDP growth will be higher in the first quarter of 2026 could be accurate but potentially misleading; the oil and other price rises may escape being captured in Q1's data. By the time of its next meeting, at the end of April, a rate hike seems likely.

Fisticuffs

Moving interest rates higher would however only intensify another fight, between the White House and the boss of the Fed, Jerome Powell. President Trump this week called for an interest rate cut "right now". He views Powell as a "numbskull"; Powell's term at the Fed ends in May. Kevin Warsh has been nominated by the President to take his place. Although Warsh has called for "regime change" at the Fed, it's possible that the other regime change, in the Middle East, could test him severely. He must be hoping the conflict will end.

As must the President, who will soon be facing mid-term elections for Congress. Even an end of the Middle East fighting will still leave huge bills. The US Department of Defense (DoD) has told the US Congress that the cost of the war for its first six days is more than $11 billion. Some estimates put the total military cost of the Iran war to US taxpayers as high as $65 billion, with another $50-£210 billion in economic losses. It's all guesswork at the moment.

What is not guess work however is the mammoth US national debt, now $39 trillion. Annual interest payments on this are now more than $1 trillion, higher than the annual national defense budget. US consumers are also loading up on debt - consumer credit card debt at the end of 2025 hit a record $1.28 trillion.

The gold price has slipped below $5,000/oz. Uncertainty and anxiety explain gold's dramatic price increase last year, and the tension this year is unchanged. Prices rise and fall. Even if inflation returns to the Fed's 2%/year target, over a decade that 2% implies a cumulative price increase of some 22%. Fights end. How they end can result in serious losses. The fight against relentless debasement of fiat money, against which Glint is the champion, never ends.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.