Don't Fight the Fed

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If you've been wondering whether to invest in 2026 or stay on the sidelines, here's something worth knowing: the Federal Reserve is making money cheaper again. And when money gets cheaper, something interesting happens—stocks, gold, and silver tend to go up.

This isn't just theory. It's a pattern we've seen play out multiple times. Understanding it could help you make smarter decisions with your money this year.

Think of the financial markets like a swimming pool. The water in that pool is what we call liquidity—basically, the amount of money floating around in the system.

When someone turns on the tap and pours more water into the pool, everything in that pool floats higher. Your rubber duck, your pool noodle, even that beach ball you forgot about—they all rise together.

The same thing happens in markets. When the Fed pumps more money into the financial system, asset prices tend to rise. Stocks go up. Gold goes up. Silver goes up. Not because companies suddenly became more valuable overnight, but because there's more money chasing the same investments.

And here's what's really interesting: this can happen even when the economy feels weak. You might be struggling with grocery bills while the stock market hits new highs. It sounds unfair (and maybe it is), but the two things aren't always connected. Markets can rise simply because there's more liquidity looking for a return.

For a few years, the Fed was doing the opposite—draining the pool. They were raising interest rates, making borrowing more expensive, and pulling money out of the system. This is called a tightening cycle.

But now, we've shifted into an easing cycle. The Fed has started cutting interest rates, which means a few important things for you:

Borrowing becomes cheaper. Companies can refinance their debt at lower rates. Mortgages get a bit more affordable. This puts more money in people's pockets and encourages spending.

Cash becomes less attractive. When your savings account pays less interest, sitting on cash feels like a losing game. So investors start looking for better returns elsewhere—usually in stocks, real estate, or precious metals.

The money printer is back on. As of December 12th, the Fed restarted what's called "balance sheet expansion"—essentially creating about $40 billion in new money every month. That's a lot of fresh water being poured into the pool.

Here's something most people don't realize: the Fed is kind of stuck.

The U.S. government runs large deficits. Banks need reserves to function properly. If the Fed turns off the money tap completely, the whole financial system could seize up—like a car engine without oil.

We saw glimpses of this in 2019 when money markets briefly went haywire. The Fed had to step in quickly to calm things down. They learned their lesson: once you start pumping liquidity, it's very hard to stop without causing chaos.

There's a trade-off to all this money creation: your dollars become worth a little less over time.

Think about it this way. If you're baking a cake and you add more water to the batter, the batter gets thinner. Same thing happens with currency. More dollars in existence means each individual dollar has slightly less purchasing power.

This is partly why gold and silver prices tend to rise when the Fed prints money. An ounce of gold is still an ounce of gold—it doesn't change. But as the dollar weakens, it takes more dollars to buy that same ounce. The gold isn't necessarily becoming more valuable; the dollar is becoming less valuable.

And here's something to consider: the current administration might actually want a moderately weaker dollar. Why? A cheaper dollar makes American exports more competitive globally, helps manage the government's massive debt load, and can boost GDP numbers. So don't expect any major policy shifts to strengthen the dollar anytime soon.

There's a phrase on Wall Street called the "Fed Put." A "put" in financial terms is basically insurance against prices falling. The "Fed Put" means that investors believe the Federal Reserve will step in to rescue markets if they fall too sharply.

We saw this happen in 2008 during the financial crisis. We saw it again in 2020 when COVID crashed markets. Both times, the Fed flooded the system with money, and markets recovered—sometimes spectacularly.

Why does this matter? Because the financial system today is more interconnected than ever. Problems in the stock market quickly spread to housing, to employment, to consumer spending. The Fed knows this. They're essentially trapped into supporting asset prices because letting them crash would cause pain that spreads everywhere.

There's also a political angle. In May 2026, a new Federal Reserve chair is expected to take office. With midterm elections on the horizon, there's likely to be pressure for policies that boost the economy and make voters feel wealthier. That usually means easier money.

Here's another way to think about all of this. Imagine a harbor full of boats. Some boats are in great shape—new engines, fresh paint, well-maintained. Others are barely floating, with leaks and rusty hulls.

Now imagine the Fed controls a massive dam at the harbor's entrance. When they open that dam and flood the harbor with water (liquidity), every boat rises—even the ones with holes in them.

This is why even struggling companies can see their stock prices rise during liquidity floods. It's not that they suddenly became better businesses. It's that there's so much money sloshing around that some of it inevitably lifts everything.

Given all these tailwinds, the argument goes: stay invested.

When money is getting cheaper and liquidity is rising, sitting on cash means watching your purchasing power slowly erode. The dollars in your savings account buy a little less each year.

Instead of fearing market dips, consider viewing them as opportunities. In a liquidity-rich environment, pullbacks have historically been temporary. The underlying current of easy money tends to push prices back up.

This doesn't mean every investment will work out. It doesn't mean there won't be volatility or scary headlines. But as long as the government keeps running deficits and the Fed keeps supporting the system, there's a powerful force pushing asset prices higher.

The old saying "don't fight the Fed" exists for a reason. When the Federal Reserve is actively making money cheaper and flooding the system with liquidity, betting against rising asset prices has historically been a losing strategy.

Does this mean markets will go up forever? Of course not. Nothing does. But understanding the current environment—the easing cycle, the balance sheet expansion, the weaker dollar, the Fed Put—helps you make more informed decisions.

Right now, the tide is coming in. And when the tide rises, boats go up with it.

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That's your 5-minute analysis for today.

Stay informed. Stay invested. Stay ahead.