$BTC Is the main task of the new Federal Reserve Chairman Warsh to “erode debt with inflation” rather than “raise interest rates”?

- Current US debt situation: Total federal government debt will soon exceed $40 trillion, and annual interest payments on the debt have already surpassed military spending. The liquidity and cost pressures brought by debt are the biggest challenges the US faces right now.
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- Policy logic:
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- The US has never intended to truly repay its debt; instead, it uses “inflation to erode debt,” repaying past more expensive money with future cheaper money.
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- Warsh creates conditions for “inflation to erode debt” by adjusting the inflation statistical framework (such as adopting the trimmed mean PCE indicator) to make inflation data appear more steady. At the same time, the US may increase its tolerance for inflation—for example, Vice President Vance has proposed raising the inflation target to around 2.5%.
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- Such a policy shift means a major change in the Fed’s monetary policy framework. Its top priority moves away from the traditional goals of controlling inflation and protecting employment, to considering fiscal sustainability and alleviating debt pressures.
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- Impacts and implications: This change could have far-reaching effects on global asset prices, the monetary system, the financial system, and the pattern of wealth distribution. It is necessary to pay attention to how it may shock the economy and markets.

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