Ripple Effect
Fed Governors Stick Their Collective Heads in the Sand
September 25, 2026 • 2 minute, 21 second read
Last week’s quarter-point rate hike by the Federal Reserve is only half the story.
Prediction markets Polymarket and Kalshi put the odds of further rate hikes at 67% chance for another 25 basis points in each of the remaining meetings, with traders anticipating additional tightening of the money supply.
What’s even more interesting ahead of the midterms, none of the FOMC members see any risks to the U.S. economy.
That’s a first, going over a decade to 2011:
In other words, some of the smartest minds, armed with doctorates in economics, don’t see the trouble that we see.
There’s an ongoing war with Iran and an energy spike. Past energy spikes have led to recessions. Given that the first half of the 2020s had an inflation spike, a second burst of inflation, driven by energy, feels like something out of the 1970s.
Market valuations are stretched. Yes, some are touting that tech stocks are cheaper now than at the start of the year, compared to strong earnings. But you have to squint at the assumptions and ignore the off-balance-sheet debts for building out the AI boom that makes Enron’s accounting practices look squeaky clean.
The AI boom, as a percentage of GDP, dwarfs all other prior financial bubbles in U.S. history, from canals and railroads to the internet:
On the monetary front, while the Fed sees clear skies ahead, the U.S. Treasury is playing whack-a-mole with bond buybacks and buying up Japanese yen to keep the carry trade from rolling over.
Current market similarities: the 1999-2000 peak of the dotcom boom, the recurring energy crunch of the 1970s, and soaring long-term bond yields against a backdrop of an unpayable $40 trillion debt.
The signs and data points show we’re closing in on a crisis in 2027. And when that does happen, bond yields will fall, just not in the way the Treasury hopes.
The “smartest minds in the room”, many of whom have led only academic careers, can’t see the dangers that we point out every day.
If you’re seeking some prudent portfolio protection, Andrew provides an alternative to high-flying markets in today’s Pro. The play also locks in some of the higher yields we expect to continue until Congress can get spending under control (sic).
~ Addison
P.S. No Grey Swan Live! this week. We’ve been attending a resource conference out in Colorado with Shad Marquitz. We’ll be back next week with an update on resources and the market.
On Wednesday afternoon on the Grey Swan Trading Fraternity, Andrew covered the recent rally in the stock market, why it doesn’t pass the smell test on a fundamental and technical level, and why you want to stay cautious. Be sure to check it out if you haven’t yet.
