Major U.S. stock market indexes continue to float along at or near all-time highs. The ride’s been both fun and exhilarating.
But stocks aren’t the only things floating at such incredibly lofty levels. Gas station signs and grocery store receipts show that everyday essentials are similarly expensive. These sky-high prices are less enjoyable.
For the wealthy, those who hold an abundance of stocks, real estate, and other appreciating assets, the economy has never been better. They get richer while they sleep.
However, for the average wage earner, the story is entirely different. For those having to make the difficult choice between filling up their gas tank just to get to work or filling up their family’s bellies, this economy absolutely blows.
The Consumer Price Index (CPI), which is fabricated to understate inflation, is even signaling that price increases continue unabated. The latest official CPI Report revealed that consumer prices increased at an annual rate of 3.8 percent in April.
This rate of inflation is certainly lower than the devastating 9.1 percent CPI peak hit back in June 2022. But make no mistake, prices are still going up every single month. What’s more, these relentless price increases are compounding on top of previous price increases, making them feel even heavier.
For example, the CPI in April 2020, right before the faux pandemic money-printing machine went into overdrive, stood at 256.389. As of April 2026, that number has climbed to 333.020. This massive jump amounts to roughly a 30 percent total increase in the cost of living over just six years.
Are you making at least 30 percent more money today than you were back in 2020? If not, this means your valuable time, talents, and labor have effectively been devalued by deliberate policies of extreme dollar debasement.
Again, this is according to the government’s fabricated statistics. We all know, based on real world experience, that prices are rising much faster than what’s officially reported.
But it’s not just consumers that are sensing higher prices. The bond market is sensing them too…
Bond Market Barometer
If inflation is the daily weather, then the global bond market is the ultimate, highly sensitive barometer. Right now, long-term bond yields are signaling that institutional investors believe the inflation monster has returned.
The yield on the benchmark 10-year Treasury note, for example, is currently sitting at about 4.5 percent. Meanwhile, further out on the risk spectrum, the 30-year Treasury bond is yielding about 5 percent.
With yields on the 10-year Treasury note holding firm in the mid-4 percent range, the market is demanding extra compensation for rising consumer prices. Investors realize that, without it, their fixed interest coupon would be fully consumed and eroded by inflation over time.
Remember, bond yields move inversely to bond prices. When investors dump bonds and demand higher yields, it’s because they see major risks on the horizon. Those looming risks include increasing structural inflation and massive, unchecked government deficits that require endless new debt issuances.
Over on the long end of the maturity curve, the 30-year Treasury bond tells an even deeper story about our collective financial future. Holding a yield that’s about 50 basis points above the 10-year Treasury note is technically normal. A healthy, upward-sloping yield curve simply means you should get paid more to lock your capital up for three full decades.
However, the fact that both critical benchmarks are firmly anchored well above 4 percent means the golden era of dirt-cheap, 3 percent 30-year rate fixed mortgages is dead and gone. It won’t be coming back either. The market is pricing in a massive structural shift. A world where borrowing money simply costs more for everyone.
With this rising inflation and rising interest rate environment, what’s a noob Federal Reserve Chair to do…
Kevin Warsh’s Ultimate Test
This brings us to the latest uncertainty in economic policy. The transition of leadership at the Fed to incoming Chairman Kevin Warsh.
Taking over the Fed always comes with unique challenges. But Warsh is stepping into an absolute minefield. He doesn’t just have to set interest rate policy. He must manage expectations, market psychology, and immense political pressure from President Donald J. Trump.
If you recall, the Fed operates under a dual mandate. It must keep prices stable (inflation at 2 percent) and maximize employment. Right now, per the headline numbers, the labor market appears relatively healthy – though the labor participation rate is in the toilet. At the same time, inflation is running hot.
If Warsh cuts interest rates too quickly to appease Trump or juice the economy prior to the midterm elections, he risks inflation igniting from a controlled burn to a roaring wildfire. If consumer demand spikes or if supply chains are disrupted while the CPI is still above target, we could see a 1970s-style second wave of inflation. That would destroy the Fed’s credibility entirely.
Conversely, if Warsh keeps rates too high for too long, something in the financial system will eventually snap. Regional banks, commercial real estate, and heavily indebted corporations are already feeling the squeeze of these interest rates. Waiting too long to ease policy could push the economy into recession. And there’s also the massive pile of government debt that would need to be rolled over at higher rates.
Warsh has historically been viewed as an inflation hawk. Someone who isn’t afraid to use tight policy to defend the dollar.
As Chairman, however, it could be a different story. When push comes to shove, he’ll likely follow the path of every other Fed Chair starting with Alan Greenspan in 1987. That is, he’ll sacrifice the dollar to ease the debt burden of an overloaded financial system.
Regardless of what Warsh does, there’s an absolute mess coming down the turnpike…
Stagflationary Simmer
By the time we are unwrapping holiday gifts and looking toward 2027, the economic landscape will likely be mired in a stagflationary simmer. Inflation isn’t going away. In fact, it’s currently heating up. This is in defiance of the optimistic forecasts from Wall Street analysts who pinned their enthusiasm on a permanent cooldown. Instead, a harsh winter looms for the average consumer’s purchasing power.
As far as we can tell, there’s not a snowball’s chance in hell that there will be a smooth drift down to 2 percent. The brief reprieve we felt is over, and the trajectory for the next six months is pointed firmly upward, threatening to erode whatever financial breathing room families managed to claw back.
The burgeoning energy and food shock, compounded by supply chain bottlenecks and misguided tariff policies, are propelling prices higher. The CPI could easily grind higher through the end of the year. And if Warsh acquiesces to Trump, it could make another run at 10 percent in 2027. This is a catastrophic scenario that would utterly decimate the middle class.
When it comes down to it, Warsh and the FOMC are completely cornered. Any lingering fantasies of rate cuts will be thoroughly dismantled as inflation wreaks havoc through the economy. Instead of a recalibration downward, the Fed will be forced to hike rates just to keep expectations anchored, even if it means triggering a severe recessionary correction.
In short, we aren’t transitioning into a smooth, disinflationary goldilocks economy as everyone hoped. We are entering a grueling uphill climb. The dollar’s eroding value is ironically fueling the fire, keeping consumer demand just strong enough to allow companies to keep raising prices. Thus, we’re trapped in a vicious, self-reinforcing cycle of financial pain.
[Editor’s note: Get a free copy of an important special report called, “Cash Machine – Why You Should Own this Mineral Royalty with a 12% Yield,” when you join the Economic Prism mailing list today. If you want a special trial deal to check out MN Gordon’s Wealth Prism Letter, you can grab that here.]
Sincerely,
MN Gordon
for Economic Prism
Return from The Brutal Truth About the Upcoming Stagflationary Simmer to Economic Prism
