Welcome to Machines & Money – a brand new publication from A1 Research! 

As an extension of our primary research, this newsletter will dive deep into 2 different but very connected worlds: 

Machines

Our “Building the Future” issues explore how blockchain tech is disrupting finance, AI, and more — and most importantly, why it actually matters (in understandable terms!)

Money

Our “Truth within Trends” issues provide data-driven insights on timely market activity and economic/geopolitical developments.

Right now, there are developments going on in our industry that can vastly improve how the world operates. However, much of this information is buried under mountains of clickbait and scams. We’re on a mission to change that! 

Now, let’s dive into our first issue, authored by 0xavarek!

On January 10, the Department of Justice served the Federal Reserve with grand jury subpoenas. The official pretext is a $2.5 billion renovation project. The actual target, according to Fed Chair Jerome Powell himself, is interest rate policy.

Powell's term as Fed Chair expires May 15, 2026. The leading candidates to replace him, Kevin Warsh and Kevin Hassett, have both signaled openness to closer coordination with the White House. 

For the first time since the 1970s, the independence of the world's most important central bank is genuinely in question.

Markets have noticed. Gold hit an all-time high of $4,643 on January 14, capping a 65% gain in 2025, its best year since 1979. Bitcoin trades around $95,000 after a volatile 2025 that saw it peak at $126,200 in October before finishing the year down 7%. The dollar index sits at 98.57, down roughly 10% from its 2025 highs. 

These are not random moves. Gold's surge and the dollar's weakness are the opening trades of what some are calling the debasement thesis. Bitcoin's lag tells a more complicated story.

What happens when a government captures its central bank? We have recent evidence.

In 2021, Turkish President Erdogan replaced his central bank governor and ordered interest rate cuts from 19% to 14%. The lira lost 44% of its value that year alone. By November 2022, Turkish inflation had reached 85.5%. Over five years, the lira fell 80% against the dollar. Erdogan cycled through six central bank governors before finally capitulating and allowing rates to rise to 50% in 2024.

The American experience is older but instructive. When Arthur Burns ran the Fed in the early 1970s, he accommodated President Nixon's demands for easy money ahead of the 1972 election. Inflation was running around 5% when Burns started. By 1974, it had reached 12.3%. 

It took Paul Volcker's historic rate hikes, which pushed the fed funds rate above 20%, to finally break the cycle.

Argentina offers an even starker warning. After decades of central bank politicization, annual inflation reached 211% in 2023. When President Milei took office and devalued the peso by 54%, monthly inflation spiked to 25%. Poverty surged to 53% before stabilizing. The central bank rate hit 50%.

The pattern is consistent: political capture of monetary policy leads to currency weakness, then inflation, then an eventual forced tightening far more painful than the original policy would have been.

The academic literature backs this up. Alesina and Summers' foundational 1993 study found that countries with independent central banks consistently experienced lower inflation from 1955 to 1988. 

A 2022 IMF study covering 100 years of Latin American data found that a one standard deviation improvement in central bank independence produced a cumulative 10 percentage point reduction in prices over five years. More recent work from CEPR in 2025 provides causal evidence that greater central bank independence significantly reduces inflation in the long run. 

The relationship is not just correlation. When governments capture their central banks, inflation follows.

Today's starting conditions are different from Turkey's, but not in entirely reassuring ways.

The Federal Reserve currently holds rates at 3.50% to 3.75%. Markets are pricing roughly 50 basis points of cuts in 2026, with June and September as the likely meetings. Inflation has fallen to 2.7% on headline CPI, 2.6% on core. 

Both remain above the Fed's 2% target, where they have stayed for 55 consecutive months. Ten-year real yields currently sit at 1.86%.

The Fed's balance sheet stands at $6.58 trillion, down from its $8.9 trillion peak in 2022 but still roughly eight times its pre-2008 size. The balance sheet reduction program concluded in December 2025, and the Fed has signaled it will begin reserve management purchases to maintain ample liquidity. A politicized Fed could easily reverse course and expand the balance sheet again.

The fiscal backdrop is where things get uncomfortable. US federal debt now exceeds $38 trillion, roughly 120% of GDP. Annual interest payments have reached $1 trillion, up from $345 billion in 2020. Interest expense now consumes 3.2% of GDP, the highest since 1991.

Every 100 basis points of lower rates would save roughly $380 billion in annual debt servicing costs. The temptation for any administration facing these numbers is obvious.

If Trump successfully installs a compliant Fed chair, the policy changes would likely unfold in stages.

The immediate moves would be rate cuts beyond what inflation data supports, possibly 100 to 200 basis points within the first year. Forward guidance would shift from data-dependent to growth-supportive. The Fed might quietly raise its inflation target or simply stop talking about 2%.

In the medium term, quantitative easing could resume even without a recession. The balance sheet, which the Fed has been trying to shrink, could expand again. Credit conditions would loosen across the board.

The longer-term risk is that none of this can be easily reversed. Once a central bank loses credibility, rebuilding it requires far more painful policy than maintaining it would have cost.

Asset prices would adjust in predictable ways.

Gold is the clearest beneficiary. Its 65% rally in 2025 reflects both the traditional inverse relationship with real interest rates and sustained central bank accumulation. World Gold Council research shows gold's correlation with real rates has historically ranged from -0.5 to -0.8 over various periods, though this relationship has weakened recently as central bank demand has added a structural bid independent of rate dynamics. 

With ten-year real yields at 1.86%, gold's rally suggests the market is pricing Fed credibility risk directly.

Bitcoin tells a different story. Despite nearly doubling in 2024, it fell 7% in 2025 after peaking at $126,200 in October. Fidelity and Grayscale research suggests Bitcoin is becoming more sensitive to macroeconomic factors as institutional participation grows, but its 2025 performance reveals it still behaves more as a liquidity-sensitive risk asset than a pure monetary hedge. 

The divergence is notable: gold is confirming the debasement thesis, while Bitcoin has yet to follow.

The dollar would weaken. It already has, with DXY down roughly 10% from its highs. A politicized Fed would accelerate this trend, particularly if other major central banks maintain their independence.

Treasury yields present a paradox. In the short term, lower policy rates would push the front end of the curve down. But if inflation expectations become unanchored, the long end would sell off as investors demand higher real yields to compensate for debasement risk. The 10-year currently yields around 4.15%. The term premium, which measures the extra compensation investors demand for holding long-term bonds, hit 0.8% in January 2025, its highest level since 2011, up from just 0.05% before the September 2024 rate cut. 

It remains elevated a year later, with estimates ranging from 0.6% to 0.8% in early January 2026, as markets continue to price uncertainty around inflation, fiscal sustainability, and potential shifts in monetary policy. This accounts for more than half of the recent rise in long-term yields and suggests investors already associate greater risk with holding US government debt.

Equities are harder to call. Easy money is typically good for stocks, at least initially. But inflation above 4% to 5% historically correlates with lower equity multiples. The net effect depends on how far and how fast inflation moves.

The immediate catalyst is Powell's term expiration on May 15. If Trump moves to replace him early, or announces a successor well before May, markets will price this in quickly.

The 5-year, 5-year forward inflation expectation is the key market-based measure of Fed credibility. It currently sits at 2.24%, still anchored near the 2% target. If this measure breaks above 2.5% and stays there, it signals that bond investors no longer trust the Fed to control inflation. 

That would be the clearest sign that the regime has changed.

Gold will likely continue to lead. If it pushes decisively above $5,000, it will reflect growing conviction that monetary policy has been compromised. Bitcoin bears watching for a different reason: if it reclaims its October 2025 highs near $126,200 while gold continues higher, it would signal the debasement trade broadening beyond traditional safe havens into risk assets. 

If the divergence persists, with gold rising and Bitcoin flat or falling, it suggests the market views them as fundamentally different instruments despite the common framing.

The DOJ investigation into Powell is either a standard oversight matter or the opening move in a campaign to subordinate the Federal Reserve to the executive branch. The market is increasingly betting on the latter.

If that bet proves correct, the implications extend well beyond interest rates. A politicized Fed would mean a weaker dollar, higher inflation, and a sustained bid for hard assets. It would also mean, eventually, a painful reckoning when the debasement trade reaches its limits.

Turkey's experience suggests that the limit arrives sooner than governments expect. Erdogan thought he could cut rates and grow his way out of trouble. Instead, he got 85% inflation and was forced to hike rates to 50%. The question for American markets is whether the same lesson will need to be relearned.

For now, gold at record highs is the market's clearest signal: hedge accordingly. Bitcoin's lag does not invalidate the thesis, but it complicates the simple narrative. 

The divergence between the two may prove as important to watch as their absolute levels.