By Brett Munster
The Limits of Discretionary Monetary Policy
Money forms the foundation of every economy, enabling trade, investment, and the coordination of complex production and consumption networks. At the heart of this system lies monetary policy—the tools and decisions that govern the supply of money, the availability of credit, and the cost of borrowing. By adjusting liquidity, setting interest rates, and shaping financial conditions, monetary policy influences borrowing and lending, investment behavior and overall economic stability.
Yet the very mechanism designed to stabilize the economy—centralized, discretionary monetary policy—has repeatedly demonstrated its shortcomings. Uncertainty over how policymakers will manage the money supply, credit conditions, and borrowing costs undermines confidence. Businesses delay investment, consumers reduce spending, and financial markets fluctuate in anticipation of decisions made by a small group of unelected officials operating behind closed doors (ie: The Federal Reserve). Analysts and investors spend countless hours dissecting every nuance of Fed statements—not because of transparency, but because of the persistent uncertainty surrounding future actions.
The recent FOMC meeting illustrates the point. On September 17th, the Fed lowered interest rates by 25 basis points—a largely expected step—but guidance on the trajectory of future policy remained ambiguous. The Fed’s dot plot, intended to clarify individual members’ expectations for the federal funds rate, often adds to confusion rather than reducing it. While the median projection suggests two additional quarter-point cuts this year, individual forecasts diverge widely: six members anticipate no further cuts, two expect one, nine foresee two totaling 50 basis points, one favors a rate hike, and another projects a dramatic 125-basis-point reduction. Chair Powell has publicly emphasized that the expected two cuts are not guaranteed, highlighting the inherent unreliability of such guidance.
This divergence illustrates a deeper challenge of discretionary monetary policy: even policymakers cannot agree on the direction of the economy, let alone predict future policies designed to help it. Some favor tighter policy, others looser; some anticipate rate hikes, others multiple cuts. In a world where investing already demands navigating unavoidable risks, the added uncertainty created by opaque monetary policy only compounds the challenge for businesses and investors alike.
This is not an isolated case. At the start of 2024, Fed communications led markets to expect six rate cuts, but only two occurred—a discrepancy of 200%. A few years earlier, the Fed gave guidance that they would not raise interest rates until after 2023, only to raise them ten times in 2022, fueling the 2023 banking crisis in which we saw three of the four largest bank failures in U.S. history.
History further reinforces the lesson. The Fed was created on the premise that manipulating liquidity and interest rates could stabilize business cycles, moderate inflation, and mitigate recessions. In practice, however, data suggest that Fed interventions often amplify volatility. Since the Fed’s founding, the U.S. economy has experienced more frequent and severe recessions, not fewer.
For example, the National Bureau of Economic Research (NBER) tracks U.S. business cycles, marking periods of expansion and contraction. Analysis of this data shows that, since the Fed’s inception, recessions have become more severe over time, suggesting that the Fed’s monetary policies may have amplified economic volatility rather than mitigated it. Furthermore, research by the Federal Reserve Bank of San Francisco shows that prolonged periods of loose monetary policy often lead to excessive credit creation and asset bubbles, sowing the seeds of future crises. Despite its intent to stabilize the economy, the data shows that discretionary monetary interventions are more likely to exacerbate, rather than smooth, economic turbulence.
The problem is not the competence or intent of Fed officials—they are among the world’s top experts in monetary economics. The issue is structural: no matter how skilled or well-intentioned, humans cannot steer a complex, globally interconnected economy by manipulating interest rates and liquidity. When the cost of capital can swing from 2% to over 5% within a few years, money itself—the foundation of commerce—becomes unstable. Human judgment, constrained by limited information and prone to disagreement, cannot provide the consistency required for long-term economic stability.
If human-led monetary policy is inherently unpredictable, the logical alternative is a system governed not by discretion but by transparent, consistent rules—one in which the supply of money and the cost of borrowing are predetermined and enforceable without human intervention. A rules-based framework would allow economic actors to plan with confidence, free from the guesswork of interpreting policymakers’ intentions.
Bitcoin exemplifies this concept. Its supply is fixed at 21 million coins, released at a predictable, gradually slowing rate. The rules governing issuance are enforced not by a central bank but by the network’s code and consensus mechanism. Every rule is transparent, every issuance predictable, every transaction verifiable. There is no political or discretionary influence, no risk of sudden monetary expansion or contraction in response to economic forecasts, elections, or political pressure.
This predictability addresses the core weakness of discretionary policy: uncertainty. Instead of markets expending vast resources interpreting opaque signals, economic actors can make decisions knowing that the underlying rules will not shift with political winds or economic forecasts. Bitcoin is the only global asset with a monetary policy that is verifiable, independent, and unalterable—a system where trust is placed not in fallible human judgment but in publicly auditable rules.
Critics argue that a fixed monetary system cannot respond to shocks or crises. Yet this objection rests on the assumption that discretionary interventions are inherently stabilizing—a notion the historical record, as highlighted earlier in this article, does not support. Ad hoc policy often amplifies volatility. A transparent, rule-bound system may not allow for immediate adjustments, but it replaces uncertainty with stability. Business cycles will still exist, but stripped of artificially engineered interventions, the severity of both booms and busts would likely be reduced.
In short, a mathematically designed monetary system offers a superior alternative to discretionary policy. By codifying the rules that govern money, it removes unpredictability, reduces the risk of crisis from mistimed interventions, and enables rational long-term planning. Stability ceases to depend on the judgment of a few and becomes a built-in feature of the system.
Bitcoin is not a panacea for all economic challenges, but it demonstrates the possibility of a monetary framework grounded in transparency, predictability, and trust—qualities that discretionary human policy has consistently failed to provide.
In Other News
XRP and DOGE ETFs record highest debut volume of any ETF this year.
White House eyes year-end finish line for crypto market structure bill.
SEC Chair Atkins pushes “innovation exemption” to fast-track crypto products.
Visa pilots stablecoin payments for businesses sending money abroad.
Bitcoin ETF inflows surge past $2 billion this week as ‘Uptober’ momentum builds.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.
BACK TO INSIGHTS