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The Fed just cut rates again. And half of America is sweating bullets. |
Inflation is still running at 3%, well above the Fed's 2% target. |
Core inflation? Same story. It's stuck around 3%, and it's not budging. Housing costs aren't cooperating. Energy prices won't quit. And here's the Fed, cutting rates anyway. |
If that makes you nervous, you're not alone. Because we've been here before. And last time, it didn't end well. |
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The 1970s Called |
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Here's what happened 50 years ago, the cliff notes version. |
The Fed cut rates too early. Inflation was falling. Everyone felt good about it. Mission accomplished, right? |
Wrong. |
Inflation roared back in the late 1970s, and it got worse—much worse. By the time it was over, interest rates hit 21% and the economy went through back-to-back recessions. |
The Fed learned a painful lesson: when you take your foot off the brake too soon, the car doesn't slow down. It speeds back up. |
The Fed cut rates in July 1974 when inflation peaked. But the celebration was premature, inflation came roaring back later in the decade. People expected prices to keep rising. Workers demanded bigger raises. Companies hiked prices to cover those raises. And the whole thing spiraled out of control. |
It took Paul Volcker to finally kill inflation. He cranked rates to 20%. Millions lost their jobs. But it worked. |
And that's the thing. Once inflation gets baked into people's thinking, it's brutal to get rid of it. You can't just ask nicely. You have to slam the economy into a wall. |
| | | | One word check: these rate cuts feel… | |
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Why 2025 Feels Like Déjà Vu |
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Fast forward to today. |
The Fed has cut rates three times in 2025, bringing the benchmark down to 3.50%-3.75%. |
They say they're balancing risks. They say monetary policy is "well positioned." They say a lot of things. |
But here's what the data says: inflation projections for 2026 are still around 2.5%, nowhere near the 2% target. |
Think about that. The Fed is cutting rates while inflation is still running hot. |
That's exactly the setup that got us into trouble in the 1970s. |
Sure, the job market is cooling a bit. Unemployment ticked up to 4.4% in September. Some people think that's reason enough to ease up. But is a slightly softer job market worth risking another inflation spiral? |
Here's where it gets interesting. Three voting members opposed the December rate cut, the highest dissent since 2019. Even inside the Fed, people aren't sure this is the right move. |
That should tell you something. |
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The History Lesson |
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Let me paint you a picture of what loose money does when inflation is still warm. |
In the early 1970s, prices started creeping up while the government was spending heavily on the Vietnam War and Great Society programs. Nixon froze prices temporarily, but that just postponed the pain. |
The Fed thought they had inflation under control. They didn't. |
By the late 1970s, the public expected inflation to keep going. That expectation became self-fulfilling. Workers asked for bigger raises, businesses raised prices, and the cycle fed on itself. |
That's the danger zone we're flirting with now. Once people start expecting prices to keep rising, they change their behavior. They buy now instead of later. They demand raises to keep up. Companies jack up prices because they know customers expect it. |
And suddenly, you're not fighting inflation anymore. You're fighting psychology. |
The Fed has avoided cutting rates too quickly while inflation falls this time around, suggesting they've learned from the 1970s mistakes. But have they learned enough? |
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The Fed's Tightrope Walk |
Here's the Fed's problem. |
Cut rates too soon, and inflation comes back. We know this. We lived it. |
Wait too long, and the job market craters. Companies stop hiring. People lose jobs. Recession hits. |
Goldman Sachs thinks the bigger risk is that the Fed might need to cut even more than planned if the labor market weakens faster than expected. |
Other economists worry that if tariffs pass through to consumers more than expected, inflation could spike again. |
It's a mess. And nobody really knows which way it's going to break. |
Fed Chair Jerome Powell's term expires in May 2026, and a new chair could change the entire approach. That adds another layer of uncertainty. |
Will the next Fed Chair be more worried about inflation or jobs? |
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Smart Money Moves |
While the Fed figures out its next move, investors are voting with their wallets. |
And here's what's wild: gold is up nearly 60% this year. Silver is up 86%. Bitcoin? Down 1.2%. |
Let that sink in. The supposedly "inflation-proof" digital currency is losing ground while old-school gold is having its best year in decades. |
Investors are positioning for what's called a "Fed policy error"—when the central bank makes the wrong move at the wrong time. That trader speaks for "we think they're screwing this up." |
Central banks are buying gold at the fastest pace in years. They're not messing around with crypto. They're going back to what worked for 5,000 years. |
Why? Because gold thrives when real interest rates are low and uncertainty is high, exactly where we are now. |
Bitcoin, meanwhile, has an identity crisis. |
The December rate cut should have been Bitcoin's moment to shine as an inflation hedge. Instead, the market shrugged. Turns out Bitcoin acts more like a tech stock than digital gold. |
When people get scared, they don't buy Bitcoin. They buy actual gold. |
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The Question Nobody's Asking |
Here's what keeps me up at night: Are we in 1974 or 1966? |
In 1974, the Fed cut rates when inflation seemed to be cooling. It came back worse. |
In 1966, the Fed faced similar pressures but the economy avoided recession through fiscal expansion. |
If 2025 looks more like 1966, stocks might keep climbing. |
If it looks more like 1974, we're in for pain. |
Which one is it? Nobody knows. |
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What This Means |
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Look, I'm not going to tell you what to do with your portfolio. |
But I'll tell you what people with real money on the line are doing. |
They're buying gold. |
J.P. Morgan forecasts gold prices to average $5,055 by 2026, rising toward $5,400 by the end of 2027. |
| ❝ | | | "It could easily go to $5,000, $10,000 in environments like this." | | | | Jamie Dimon, JPMorgan CEO |
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Yes, gold prices have surged above $4,300 per ounce in December 2025. |
That's not some random guess. That's based on central bank buying, inflation fears, and geopolitical chaos. |
They're not betting the farm on Bitcoin. Bitcoin isn't behaving like an inflation hedge. It's acting like a "liquidity barometer"—meaning it moves with loose money, not inflation protection. |
They're watching the Fed like hawks. Because even within the Fed, there's a wide range of views on where rates should go. |
Some officials see four more cuts in 2026. Others see none. |
That tells you everything you need to know about how uncertain this situation is. |
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The Bottom Line |
Half of you are terrified the Fed is cutting rates while inflation is still too high. |
The 1970s showed us what happens when central banks ease too soon. It's not pretty. It's not easy to fix. And it costs jobs, savings, and decades of trust. |
The Fed might also be right. Maybe the job market really is weakening faster than the data shows. Maybe one or two more cuts prevent a recession without reigniting inflation. |
Maybe. |
The problem is, we won't know until it's too late to change course. By the time we figure out whether this was the right call, the damage will be done one way or the other. |
So yeah, if you're nervous about these rate cuts, you're not crazy. You're paying attention to history. And history has a pretty clear message: cutting rates while inflation is still elevated is playing with fire. |
| | | | If you had to pick one hedge against a Fed policy mistake right now, what would it be? | |
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Disclaimer: This analysis is for educational purposes only and should not be considered investment advice. Always do your own research before making investment decisions. Items marked with an asterisk (*) are promotional and help support this newsletter at no cost to readers. |
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