THE IRON CURTAIN OF RATES

THE IRON CURTAIN OF RATES
A memo from the desk of someone who has been staring at Fed minutes for too long
Let’s get this out of the way: the Fed minutes that landed Wednesday afternoon were not dovish. They were not hawkish. They were something rarer and more disquieting — they were fractured. A central bank publicly talking itself into, and then immediately out of, the same corner. And markets, predictably, didn’t know how to feel about it either.
Here’s the situation as it stands. The Fed held at 3.5%–3.75% in January — no surprise there. Three cuts in late 2025, then a pause. Fine. But when you actually read the minutes, there’s a sentence that should give you pause, and I mean the kind of pause that costs people money: several officials even suggested the central bank may need to raise rates if inflation remains stubbornly high. Rate hikes. In 2026. Spoken aloud, inside the Eccles Building. Not fringe thinking — actual deliberation.
The 10-year reacted accordingly. The 10-year Treasury yield climbed more than 3 basis points to 4.087%, while the 2-year note pushed to 3.468%. Nothing catastrophic. But the direction is a signal. The market is quietly repricing a “higher for longer” scenario it had largely dismissed six weeks ago.
What’s actually happening inside the Fed is a three-way collision. You have the doves — Miran and Waller — who dissented in January and wanted a cut then and there. You have the hawks — Logan in Dallas, Hammack in Cleveland — who’ve been saying “inflation isn’t done” since before anyone wanted to hear it. And you have a mushy middle that keeps describing itself as “data-dependent,” which at this point means: we genuinely don’t know, and we’d rather not commit. Participants generally expected inflation to come down through the year, “though the pace and timing of this decline remained uncertain.” That sentence cost a lot of editorial meetings and still says absolutely nothing.
The tariff defense is the most interesting part. Officials attributed much of the recent price pressure to the implementation of new import tariffs, which they categorized as “one-time effects,” expecting them to fade by mid-year. This is the kind of forward guidance that works beautifully in a textbook and poorly in reality. Tariffs are not a weather event. They recalibrate supply chains, shift manufacturing decisions, reprice imported inputs permanently. Calling them “one-time” is the policy equivalent of calling a forest fire a controlled burn after the fact.
Nvidia, Meta, and the AI Machine That Doesn’t Care About Rates
Over in equity markets, tech refused to sulk. Nvidia climbed 2% on news of an expanded AI chip deal with Meta Platforms, the two companies deepening a partnership that reportedly includes Meta’s first large-scale rollout of Nvidia’s Grace CPUs, GB300 systems, and confidential computing features baked into WhatsApp infrastructure. The deal is enormous in its ambition, and Wall Street’s response was appropriately enthusiastic. NVDA up. META up. VIX still stubbornly above 20, which means somebody, somewhere, is hedging something they don’t want to talk about.
What This Week Actually Means
The Fed is not going to cut in March. It’s almost certainly not going to cut in May. The futures market prices in little likelihood of a rate cut until June — coinciding with the first meeting chaired by Powell’s replacement. Which brings us to the elephant in the room: the pending transition at the top of the central bank. Powell’s term ends in May. Kevin Warsh — nominated by the White House — is waiting in the wings with confirmation hearings still ahead. Warsh has publicly favored lower rates. Two of the current dissenters, Miran and Waller, align with that view. So the very committee that is currently contemplating rate hikes could, by summer, look structurally different in how it votes.
Markets are trying to price that in and finding it almost impossible. You’re basically being asked to build a probability tree with two separate root nodes: one where the current Fed math holds, and one where the new chair reshapes the institution’s risk tolerance within months of taking office. The result is a VIX that won’t come down, a yield curve that won’t commit, and equities that keep grinding higher on AI narratives because what else are they supposed to do.
Friday brings PCE. The first estimate of fourth-quarter GDP is expected to come in at 3%, down from Q3’s 4.4%, partly attributed to what was apparently the longest government shutdown on record — 43 days. Also on tap: Walmart earnings this morning, which will tell us something real about the American consumer in a way that no Fed minute ever could.
Gold, Bitcoin, and the Trust Deficit
Bitcoin is sitting around $67,000. Gold is near $4,970 — still extraordinary by any historical measure — after that jaw-dropping collapse from above $5,550 in early February. The metals trade isn’t over; it’s just digesting. The same crowded positions that got unwound in one brutal session will find their way back in, because the macro logic driving gold hasn’t changed: fiscal deficits, rate uncertainty, geopolitical overhang, and a central bank that just admitted out loud it doesn’t know whether its next move is up or down.
That last point deserves to sit with you.
The most powerful monetary institution in the world, managing the reserve currency, with $7 trillion on its balance sheet, just published a document confirming that its members are divided between cutting rates and raising them. Not over a long arc — right now. In the same room. In the same meeting.
If you’re wondering why nobody trusts the forward guidance anymore, there’s your answer.

PCE drops Friday. Walmart reports this morning. Nvidia earnings next week.
Watch the 2-year. Watch it closely.