The U.S. is battling high and persistent inflation, but policymakers must also consider the fact that massive twin deficits complicate efforts to increase borrowing costs and cool down rising prices while, at the same time, keeping the Treasury market liquid. Luke Gromen, founder and president of the Forest for the Trees (FFTT), joins Tavi Costa, partner and portfolio manager at Crescat Capital, to talk about how the Federal Reserve may be forced to back off its tightening cycle, to inject new liquidity into an inflation spike, and to allow the Consumer Price Index to run even hotter at “eight to 10 to 15% for the next five years.” Gromen and Costa consider skyrocketing commodity prices in an environment where cost of capital is rising. Gromen emphasizes that these signals point back to the Fed’s “third shadow mandate” to maintain Treasury market functioning and that investors are realizing the U.S. can’t afford positive real rates because of its debt burden. The current environment no longer permits ignoring the structural problems posed by large budget shortfalls. As Gromen notes, “Deficits matter again.” Recorded on April 4, 2022.