Fed's 'Frog Boiling' Policy Under Warsh
Darius Dale, founder of macro research firm 42 Macro, warns that Kevin Warsh, the newly appointed Federal Reserve chair, is pursuing a de facto accommodative policy despite hawkish public statements. Dale points to persistent inflation drivers—accelerating money supply growth, elevated fiscal deficit spending, and renewed credit expansion—as evidence that the US has not embarked on a credible disinflationary trajectory. Warsh's 'tough talk' is interpreted as a communication tactic to manage market expectations rather than a genuine commitment to tightening. This 'frog boiling' approach risks allowing inflation to become entrenched, with the Fed reacting too late.
K-Shaped Economy and the Cantillon Effect
Dale also highlights the deepening K-shaped divide in the US economy. The top 1% of households maintain high consumption levels thanks to enormous cash reserves accumulated during the pandemic, while lower-income consumers face default rates now comparable to those seen during the 2008 financial crisis. Financial repression (artificially low interest rates and yield curve control) further exacerbates the Cantillon effect—the process by which newly created money flows first to those closest to the monetary system, inflating asset prices and benefiting the wealthy, while ordinary households experience eroded purchasing power. This structural imbalance not only fuels social fragmentation but also creates a macro environment conducive to alternative stores of value. In such a scenario, Bitcoin and other hard assets may attract increased demand as hedges against fiat currency debasement and systemic instability.