The Fed Is Fighting the Wrong War: Tariffs Aren't Inflation

The Fed’s fighting a phantom inflation fire...could their cure be the real poison? A misdiagnosis this big could mean big risk…Are you ready?

By Rebel Capitalist News Desk

The Fed is preparing for a wildfire. But what if it’s just a backyard barbecue?
Wall Street is bracing for stagflation, and the headlines scream “Tariffs = Inflation.”

But what if that’s not just wrong…but dangerously wrong?

Investors who confuse price shocks for price spirals could be making catastrophic mistakes right now. And the Fed? They’re not just misreading the map…they’re marching us off a cliff.

We’ve seen this movie before. The Fed tightens into weakness. The media parrots the panic. And investors who don’t understand the difference between monetary inflation and a fiscal price jolt get crushed.

There's a headline making the rounds today: "Fed Stays Cautious Amid Stagflation Fears."

That headline sounds ominous. But behind it is a fundamental misunderstanding of economics that even the highest levels of the Federal Reserve continue to make.

Here it is in plain English: The Fed is worrying about tariffs causing inflation. But the reality is, tariffs might raise prices, yes…but that’s not inflation. It’s a one-time price adjustment.

And the difference between a price adjustment and inflation matters a lot!

Especially when you're making decisions that affect interest rates, employment, asset prices, and the broader economy.

Let’s break this down, Rebel Capitalist style.

What the Fed Thinks Is Happening

The Fed sees the risk of stagflation: slowing growth combined with rising prices.

And they’re pointing to new or expanded tariffs on imported goods as a possible source of the price increases.

They’re thinking, "Hey, if tariffs raise the price of imported steel or cars or electronics, that feeds into consumer prices. We have to stay hawkish."

But here's the problem with that logic:

Tariffs might raise prices initially, but they don't cause prices to keep rising. That’s the difference between price level adjustment and price acceleration.

The Fed’s policy tools (like interest rates) are designed to fight the latter…not the former.

The Fed sees a spark and calls in the fire trucks. But this isn’t a blaze…they’re soaking the economy over a stove-top flare-up.

The real question is: what’s actually happening underneath the hood? That’s where the market mispricing starts…and where opportunities begin.

What’s Actually Happening

Let’s say the U.S. slaps a 100% tariff on flat-screen TVs imported from Asia.

What happens?

• Prices of those TVs go up…maybe by 80% overnight.

• Consumers notice. Companies react. Supply chains adjust.

• But that price doesn't keep going up every month just because of the tariff.

It’s a step up in prices, not a climb.

Now here’s the key insight:

Monetary policy (interest rates) can slow credit, curb spending, and reduce demand. But it can’t do anything about a government policy that forces prices higher once.

So the Fed sees the price increase and says, "We need to stay tight.”

But higher interest rates doesn't make flat-screen TVs cheaper. It just makes mortgages more expensive. It kills housing. It hits business investment. It weakens labor markets.

In other words: Their using the wrong tool for the job. In fact, they don’t have a tool for the job.

The Fed is tightening the screws on the economy…for something it can’t fix. But the real danger isn’t just bad policy…it’s a fundamental mis-definition of inflation itself.

And that mistake has ripple effects far beyond tariffs or TVs.

Price Adjustment ≠ Inflation

This is where the mainstream gets it wrong. Inflation is not "higher prices."

Inflation is ongoing, broad-based price increases driven by monetary forces.

Tariffs are not monetary. They are fiscal and trade policy. They alter relative prices.

They might cause substitution effects (buying different products or fewer products). But they don’t create systemic, ongoing devaluation of money.

So when the Fed uses interest rate hikes to try to counteract a price adjustment, they’re misdiagnosing the problem.

And when you misdiagnose a problem, your medicine becomes poison.

The Fed isn’t curing inflation…they’re creating new symptoms.

And with the political cycle heating up, these missteps could soon collide with a new wave of price distortions. The next move won’t come from the Fed…it’ll come from Washington.

Why This Matters Now

The U.S. is entering a political cycle where tariffs are back on the table. Both parties are talking about re-shoring, industrial policy, and protecting domestic jobs.

That means more price shocks may come…not because of demand, but because of policy decisions that change supply chains.

If the Fed keeps treating every price shock as inflation, they risk keeping rates too high into weakness.

That means:

• Higher risk of recession

• Market dislocations

• Missed investment opportunities

Smart investors will separate signal from noise.

What’s coming isn’t just policy confusion…it’s a probable investing window. A window to buy what’s undervalued, bet against what’s mispriced, and sidestep the pain everyone else is sleepwalking into. But only if you know how to interpret the signals.

Know the Game, Play It Right

The Fed is still using blunt tools for surgical problems. They see tariffs and reach for the rate hike lever. But tariffs aren’t inflation…they’re pricing shocks.

If you treat a broken leg with chemotherapy, the patient gets worse, not better.

So watch what the Fed is doing. But understand what they’re reacting to. There is opportunity in the disconnect.

As always, manage risk, make asymmetric bets, make sure you have an edge…the Fed’s confusion is your edge…if you know how to exploit it.

Most investors will keep playing the wrong game with the wrong rules. But Rebel Capitalists like you? You’re already ahead of the curve.

If you found this breakdown valuable, join thousands of contrarian thinkers on the Rebel Capitalist News Desk for more deep-dive macro insights, uncensored market intelligence, and investing strategies you won’t hear on CNBC.

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Rebel Capitalist News Desk
May 29, 2025