Fed’s Wavering Hand, Market’s Delusion: 2026 Looms

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The S&P 500 (^GSPC 0.35%) climbs, blind and grinning, like a drunkard stumbling toward a cliff edge he refuses to believe exists. Since the bottom in 2022, it has nearly doubled-fueled not by bread, not by labor, not by wages-but by the electric fumes of artificial intelligence, a specter sold as salvation. The machines will feed us, they say. The machines will work for free. While gig workers patch together four apps for one living wage, the market worships code.

And now, as this bull, fat and slow from three years of easy gains, lumbers into 2026, the ground beneath it trembles. The Federal Reserve, that temple of cloaked men adjusting dials for the powerful, whispers uncertainty. Not in parables, but in dissenting votes and contradictory projections-raw data that even the blind can read. The S&P, still dancing, does not care. Or pretends not to.

The Committee That Cannot Agree

The FOMC met in December and lowered the federal funds rate by a quarter-point-its third cut in a row. A ritual. A performance. They still gather eight times a year, these stewards of capital, to divine the economy’s fate not from workers’ hands, but from spreadsheets and smoothed curves.

For years, they moved in lockstep, unanimous, as if truth were singular. But in July, two broke away. Then three. In December, three: one wanting a bigger drop, two wanting nothing at all. Eight voting members. Three directions. Like sailors arguing as the storm gathers.

But the real story is in the shadows-the dot plot, that strange horoscope the Fed presents, forecasting where rates will be. Of the 19 souls on that committee, six thought no cut was needed this month. Seven see no cuts in 2026. Four? They see rates frozen clean through 2028-long past the next election, long past the next layoff wave.

So much for dovish dreams. Even if the throne changes hands, even if a new face named by a man who trades in bluster and tariffs ascends, there is no mandate-only division. And where power fractures, nothing gets built. Only survival.

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Tariffs and Their Quiet Victims

Why this hesitation? Not fear of the people. Never that. But fear of the cost-the slow bleed of Donald Trump’s tariffs, which land not on millionaires, but on the backs of clerks, drivers, cooks. The San Francisco Fed says it plainly: tariffs raise unemployment quickly. Prices dip first-trickery-then surge. Demand withers. People buy less. Not from choice, but necessity.

The St. Louis branch adds its voice: 2025 already burns with higher prices. Businesses, greedy or afraid, delayed the reckoning. But in 2026? The bill comes due. Inflation, like a caged animal, waits to break free.

And so they hesitate. Raise rates? Crush the worker. Lower them? Unleash fire. A choice between thirst and drowning. Meanwhile, the Fed’s quiet assumption-that tariffs bring stable jobs in the end-reeks of delusion. Jobs aren’t stable when they’re temporary, invisible, or paid in promises.

And what of growth? They point to GDP. But look closer. Much of that number is pumped by a handful of tech giants playing god with AI budgets. One misstep-burnout, botched rollout, market fatigue-and the balloon bursts. The entire choreography collapses. The gig economy, already stretched thin, will snap first.

The S&P’s Fever Dream

And still, the market dances. The S&P sells for 22 times next year’s expected earnings. A fever price. A gambler’s grin. As if 2026 will be kind. As if inflation won’t eat wages, as if layoffs won’t come, as if dreams can survive rent.

The CAPE ratio-Shiller’s mirror-reads 40.6. Once, only the dot-com madness reached higher. That ended in ruins, in layoffs, in quiet suicides over failed options. Now we repeat it, polished with machine learning and venture capital. Shiller himself warns: expect returns worse than inflation. You will lose ground. Slowly, politely.

At these heights, even a whisper shatters glass. A single earnings miss, a tariff’s full bite, a factory shutdown abroad-and the revision thunder rolls. Investors, so sure, will scramble. But those closest to the bone-delivery riders, temps, freelancers-won’t need a chart to know the storm has hit. They’ll feel it in the next shift that doesn’t come.

So what to do? No one should burn their portfolio. But let some cash gather-like rainwater before a drought. Especially if you’re near the end of your grind, if sleep matters more than speculation. Most should stay in stocks-but only in what you trust, in what has roots, not just wings. Don’t bet on falling rates. The Fed is lost. And dreams built on cheap money are the first to burn.

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2025-12-30 04:07