This article was originally published in our weekly newsletter.

Milton Friedman once said, “The Fed only knows two speeds: too fast, and too slow.”

That might be the most accurate way to describe the position Fed Chair Jerome Powell finds himself in today.

The U.S. dollar has lost about 11% of its value year to date.

Historically, raising interest rates tends to strengthen the dollar.

Why?

Because higher rates mean U.S. assets, like government bonds, would offer better returns, attracting foreign investors.

On the other hand, lowering interest rates typically weakens the dollar, as investors often seek better returns elsewhere.

But the Fed isn’t just managing the value of the dollar.

It also has to control inflation, which can create a conflict.

If the Fed raises rates, it would slow inflation and boost the dollar, but risk stalling the economy.

If the Fed lowers rates, it could stimulate the economy, but risk triggering inflation and weakening the dollar even further.

So here’s the debate: Should Powell lower rates?

Some economists (and Trump) believe it’s time to lower rates.

Lower rates could boost consumer and business activity, helping stimulate growth.

Trump needs this to happen for his agenda to succeed.

In other words, his bill is based on supply chain economics theory, which only works if the economy grows rapidly.

However, lower rates could push the dollar down even further and risk another round of hyperinflation.

Keeping rates steady (or raising them) could support the dollar, but it might also apply more pressure to the economy.

Which is the lesser of two evils?

We’ve seen this debate before.

In the 1970s, the Fed cut rates too early.

The result?

A devastating round of inflation that took years and painful rate hikes to tame.

Today’s challenge is slightly different, but the stakes may be just as high.

Let’s hope the Fed, whether Powell stays as the Fed or he resigns and someone else takes over, gets the speed right.

The Takeaway

Be ready for a growing economy or a stagnant economy.

Be ready for low inflation or another round of hyperinflation.

Be ready for a stronger dollar or a weaker dollar.

We are at a crossroads, and no single person has the power to force an outcome.

It will be interesting to watch it play out, to say the least.