The Federal Reserve likes to talk about inflation as if it's something they can manage with precision. But according to macro analyst Tavi Costa, the reality is messier: America's ballooning debt is quietly boxing in policymakers, and the market hasn't fully grasped just how limited their options have become.
In an exclusive conversation with MarketDash, Costa laid out why he thinks the current rally in gold and silver isn't some fleeting momentum play. It's a structural shift driven by fiscal constraints that aren't going away.
"There's many reasons why metals are very cheap historically speaking despite the nominal rise that we're seeing in terms of prices," Costa explained. He believes gold and silver are still "in an early stage of a secular bull market."
This week gave us a dramatic illustration of the pressure cooker the Fed is operating in. Gold and silver surged to fresh record highs Monday after news broke that the Department of Justice launched a criminal investigation into Fed Chair Jerome Powell over renovation costs at the Federal Reserve's headquarters.
Powell dismissed the probe as a "pretext" for the Trump administration's campaign to force rates lower. And that's exactly Costa's point.
"Monetary policy is no longer about inflation or jobs. It's about one thing: Making government debt affordable. This has played out many times in history. Debt only becomes a problem when interest costs reach extreme levels," Costa wrote on X.
When Debt Dictates Monetary Policy
Costa's thesis hinges on a simple but powerful idea: when interest payments eat up too much of the federal budget, the Fed loses its independence in practice, even if it maintains it in theory.
As rates climb, interest costs consume more federal spending, squeezing fiscal flexibility. That dynamic makes sustained tight monetary policy nearly impossible to maintain.
"The path of least resistance will continue to be inflation, inflating our way out of the debt problem," Costa said.
He argues that once interest payments balloon, the Fed's traditional dual mandate—stable prices and maximum employment—starts to feel like a luxury policymakers can't afford.
"When you're in that situation, it gets to a point where the whole mandate of the Fed being focused on stability of inflation and labor markets becomes irrelevant," Costa explained. "All you need to care is you need to lower rates just to make the government breathe."
Costa pointed to historical parallels, noting similar debt-driven constraints emerged in the UK during the 1800s, when interest costs began dictating policy decisions rather than economic fundamentals.
Currency Debasement: The Quiet Force Behind the Metals Rally
Currency debasement—the slow erosion of purchasing power through excessive money creation and debt financing—is central to Costa's bullish metals call.
"I think it has to do a lot with the debasement," he said, highlighting how purchasing power is declining across fiat currencies globally.
He thinks investors often dismiss debasement as some abstract economic concept while missing its tangible impact on asset prices and inflation.
"Do people really think that we're going to go from sustainably high metal prices moving forward and that's just not going to lead to inflation?" Costa asked.
The numbers are hard to ignore. The iShares Silver Trust (SLV) has rocketed 130% over the past six months. "It's not normal to see this type of change in prices of silver like we're seeing today," he noted.
Costa believes consumers are seriously underestimating the risk of a hyperinflation scenario. Gold and silver, he argues, tend to move early because they reflect shifts in purchasing power before inflation becomes obvious in consumer price data.