WASHINGTON, DC - APRIL 21: Kevin Warsh, U.S. President Donald Trump's nominee for Chair of the Federal Reserve, arrives for his Senate Committee on Banking, Housing, and Urban Affairs confirmation hearing in the Dirksen Senate Office Building on April 21, 2026 in Washington, DC. President Trump nominated Warsh, a former member of the Federal Reserve Board of Governors, to replace Jerome Powell amid bipartisan concerns over the Justice Department's criminal investigation into the central bank’s current leader. (Photo by Andrew Harnik/Getty Images)

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What the Federal Reserve does has nothing to do with inflation. The central bank is not the source of the hyperinflation that Mises disciples (this is a shame simply because Mises himself was brilliant) imagine it to be, nor is the Fed the sober inflation fighter as neo-Keynesians and supply-siders imagine. It’s just the Fed, yet another bureaucracy in search of a purpose.

Inflation is a shrinkage in the unit, in our case the dollar, yet the dollar’s value has never has been part of the Fed’s policy portfolio. In support of this truth, it’s worth repeating historical examples that readers of this column (and my books) know well: in 1933 FDR literally decided to devalue the dollar from his bathtub. The Fed was powerless to reverse his decision to shrink the dollar from 1/20^th of a gold ounce to 1/35^th.

So incensed was then Fed-Chairman Eugene Meyer about FDR’s decision that he resigned, then proceeded to buy the Washington Post as a vehicle to criticize FDR and his inflation. Fast forward to 1971, and we know from then Fed-Chairman Arthur Burns’s diaries that he was passionately opposed to President Richard Nixon’s decision to sever the dollar’s link to gold, which was an explicit devaluation. Yet Burns, like Meyer before him, was powerless to fight a decision he disdained.

Ok, so why is the Fed viewed as an inflation fighter? The false notion is rooted in the Phillips Curve belief that economic growth causes inflation, and that low rates of interest allegedly made low by the Fed stimulate economic growth. Everything is false about this.

Economic growth is an effect of investment. With investment, talent is matched with capital on the path to more production at lower prices. Translated, the surest sign of booming economic growth is falling prices.

What about rates and credit? They’re set by actual markets. Per Mises himself, we borrow money for what it can be exchanged for. Trucks, tractors, computers, desks, labor. It’s a reminder that credit is produced, which means the only limit to credit isn’t central bank “ease” or “tightness,” rather it’s global production.

To which some will ask, can’t the Fed lower rates on the path to more credit and more growth? No all around. Short of money being placed in a coffee can or under a mattress, it never lays idle, which means wealth never lays idle, which means credit never lays idle. If there’s production, there’s credit at market prices.

As for lower interest rates stimulating growth, the notion is backwards. Production first, then credit. Production is the only source of credit, at which point production itself is what drives abundant capital formation. What’s formed then finds new ideas without regard to what the Fed does with rates. Think 2022.

The Fed began a series of hikes in March of 2022, 525 basis points in total. In late November of 2022, OpenAI released ChatGPT. A credit explosion in Northern California ensued, with none of it having anything to do with an “easy” Fed. Production is the source of credit, while subsequent production is the only recipient of it. The greater the production, the more credit (usually equity) that it attracts.

The Fed is a sideshow on credit, and irrelevant to inflation. Mises disciples believe otherwise because they imagine banks, for being banks, multiply money. Keynesians believe the Fed controls inflation because they believe government powers economic growth. Supply side happy talkers support Keynesian mysticism owing to their odd belief that Paul Volcker stopped the 1970s inflation. They’re all wrong.