The Federal Reserve continues to frame inflation as a policy choice, but its growing debt burden is quietly narrowing the range of available outcomes for policymakers, a dynamic that remains supportive of gold and silver.
In an exclusive interview with Benzinga, macro analyst Tavi Costa said markets are underestimating how constrained the Fed has become as interest costs rise and fiscal pressures intensify.
Costa indicates the rally in precious metals is not a momentum trade, but rather a structural response to policy reality.
“There’s many reasons why metals are very cheap historically speaking despite the nominal rise that we’re seeing in terms of prices,” Costa said, adding that gold and silver remain “in an early stage of a secular bull market.”
On Monday, gold and silver climbed to fresh record highs after the Department of Justice opened a criminal investigation into Fed Chair Jerome Powell over renovation costs at the Federal Reserve’s headquarters.
Powell said the probe is merely a “pretext” for escalating pressure from the Trump administration to push interest rates lower.
“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 commented in a post on social media X.
A Debt-Trapped Fed Is Fueling The Metals Boom, Costa Says
Costa said the scale of U.S. debt fundamentally changes how monetary policy works. As interest rates rise, interest payments absorb a larger share of federal spending, reducing the government’s fiscal flexibility.
Costa said that dynamic makes it increasingly difficult for the Fed to keep policy tight for long periods.
“The path of least resistance will continue to be inflation, inflating our way out of the debt problem,” Costa said.
He indicated that once interest payments become too large, the Fed’s traditional mandate starts to lose relevance.
“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 said.
“All you need to care is you need to lower rates just to make the government breathe.”
Costa said similar debt-driven constraints emerged in the UK during the 1800s, when interest costs began to dictate policy decisions.
Dollar Debasement Is The Hidden Driver Behind Gold And Silver’s Rally
Costa said currency debasement – the gradual loss of purchasing power caused by excessive money creation and debt financing – plays a central role in today’s metals rally.
“I think it has to do a lot with the debasement,” he said, pointing to declining purchasing power across fiat currencies.
He highlighted that investors often treat debasement as an abstract concept while ignoring its real-world consequences.
“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 said.
The iShares Silver Trust (NYSE:SLV) has rallied 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 added.
According to Costa, consumers are underestimating the risk of a hyperinflation scenario.
Gold and silver, he said, tend to react early because they reflect shifts in purchasing power before inflation shows up clearly in consumer data.
Fed Rate Cuts Are Underpriced
Costa said markets are misjudging how aggressive future rate cuts may be. While Fed futures price in just two rate cuts in 2026, he said he strongly disagrees with expectations of only modest easing.
“I think we are going to see a lot more,” Costa said.
“If there is a recession or any type of downturn, they’re going to take it to zero,” he added.
In his view, the Fed’s goal will not be fine-tuning inflation. It will be relieving debt pressure and freeing fiscal capacity.
The Bigger Message
Costa said gold and silver are not flashing a speculative warning as supply remains tight despite higher prices.
“Production for silver is not on the rise,” he said. “I don’t see any new mines coming online.”
“If you look at capex adjusted for gold prices, we are not only at a historical low, we’re collapsing,” Costa said.
Instead, precious metals are reacting to structural constraints facing monetary policy.
“When you’re in that situation, this is where you want to own hard assets,” he said.
As debt continues to box in the Fed, Costa said currency debasement becomes the default path, and gold and silver remain among the clearest expressions of that reality.
Photo: corlaffra via Shutterstock
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