Jobs trump inflation in the Fed’s calculations

Faced with the choice, the Fed considers unemployment a greater threat to the economy than higher inflation. It is why they lowered interest rates again by one quarter point to close out the year.

Stocks rallied on the news on Wednesday afternoon but fell back on Thursday and Friday. At least the major averages did, but what went on under the hood spoke volumes about how investors are interpreting the news.

Commodity stocks of all kinds were up and outperforming, as were precious metals. Silver was the standout this week, outpacing gold, platinum, and palladium. The equal-weighted S&P 500, which allocates the same weight to each stock in the index, outperformed the benchmark index.

Why is that significant? A mere handful of stocks (around 10 overall), which represent 40% of the benchmark, have consistently beaten the remaining 490 stocks in performance for several years.

Why would the Fed’s interest rate decision create this kind of dispersion? The central bank not only cut rates but also promised to begin buying $40 billion worth of short-term Treasury bills starting today, Friday, Dec. 12. Their buying spree is open-ended, but many believe it could taper off by April. I have my doubts.

Investors were also surprised by several other comments by Fed Chair Jerome Powell. In the Q&A session after the FOMC meeting, Powell mentioned that the policy board expected the economy to accelerate next year to above 2%, which was higher than most investors had expected. Powell also said that while inflation was still not at the Fed’s 2% target, the effect of tariffs would be a one-off price jolt and not the beginning of a spike in inflation rates.

As for the employment picture, he thought it might be faltering a bit. He revealed that the data in every monthly non-farm payroll report was 60,000 per month too high, due to how the data is collected and processed. As such, labor gains are often overstated. In summary, Powell believes the fed funds rate is now at a level where monetary policy is in equilibrium, neither too tight nor too loose.

Investors could not help but conclude from his comments that the Fed seems willing to run the economy “hot” in 2026. A faster-than-expected growth rate in the economy, moderate inflation, and an injection of $40 billions of additional liquidity into the financial system is a recipe for investing in ‘real economy’ stocks.

Consumer discretionary, financials, industrials, small-cap, and cyclical stocks suddenly began to outperform. These are stocks with attractive valuations, reasonable growth, and that should stand to benefit from Fed policies in the overall economy. Traders began to rotate out of the narrow, more focused speculative “AI” momentum stocks that have outperformed everything else in the last 18 months.

The problem with that scenario is that technology stocks, in general, and Mag 7/AI Five in particular, comprise such a large share of the main equity averages that selling them cannot help but sink the entire market. Friday’s sell-off was an example of the impact of this rotation. However, stocks have been climbing nonstop for the last several days, so this bout of profit-taking was overdue.

For me, the Fed’s move to shore up the credit markets by buying $40 billion in short-term bills and treasury notes is the first shot across the bow of what I believe will be the monetization of the nation’s debt. Short-term government debt accounts for two-thirds of all sovereign debt outstanding.

Both Treasury Secretaries Janet Yellen and Scott Bessent have steered clear of auctioning off long-term debt securities to cover our burgeoning debt costs. They knew that doing so would force yields on the ten- and twenty-year bonds to rise much higher. Instead, they have used short-term treasury notes and bills in the auctions.

Enter the U.S. central bank. Does anyone else see this circle forming? The U.S. central bank (which prints money) is now buying $40 billion of U.S. short-term debt each month as the U.S. Treasury sells it to a shrinking market. This is not quantitative easing. This is the U.S. government buying back the securities it sold to cover our debt obligations by printing money.

I know most will disagree with my premise. After all, this is early days, and we won’t truly know for sure until the spring, when supposedly these Fed purchases will no longer be needed. In the meantime, I will be listening for moves of this sort out of the government.

Readers should also prepare for the Supreme Court decision, expected in the next week or so, on the Trump tariff question. The way they address the legality of these tariffs will likely affect markets. I expect stocks to fluctuate for the next week or two. This pullback in the process has a little more to run, but then we should bounce back and test, if not exceed, highs.

Bill Schmick is a founding partner of Onota Partners, Inc., in the Berkshires.Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners, Inc. (OPI).

The views expressed here are not necessarily those of The Lakeville Journal and The Journal does not support or oppose candidates for public office.

Latest News

To mow or not to mow?

To mow or not to mow?

A partially mowed meadow in early spring provides habitat for wildlife while helping to keep invasive plants in check.

Dee Salomon

Love it or hate it, there is no denying the several blankets of snow this winter were beautiful, especially as they visually muffled some of the damage they caused in the first place.There appears to be tree damage — some minor and some major — in many places, and now that we can move around, the pre-spring cleanup begins. Here, a heavy snow buildup on our sun porch roof crashed onto the shrubs below, snapping off branches and cleaving a boxwood in half, flattening it.

The other area that has been flattened by the snow is the meadow, now heading into its fourth year of post-lawn alterations. A short recap on its genesis: I simply stopped mowing a half-acre of lawn, planted some flowering plants, spread little bluestem seeds and, far less simply, obsessively pluck out invasive plants such as sheep sorrel and stilt grass. And while it’s not exactly enchanting, it is flourishing, so much so that I cannot bring myself to mow.

Keep ReadingShow less

Where the mat meets the market

Where the mat meets the market

Kathy Reisfeld

Elena Spellman

In a barn on Maple Avenue in Great Barrington, Kathy Reisfeld merges two unlikely worlds: wealth management and yoga, teaching clients and students alike how stability — financial and emotional — comes from practice.

Her life sits at an intersection many assume can’t exist: high finance and yoga. One world is often reduced to greed, the other to “woo-woo” stretching. Yet in conversation, she makes both feel grounded, less like opposites and more like two languages describing the same human need for stability.

Keep ReadingShow less
Capitol hosts first-ever staging of Civil War love story

Playwright Cinzi Lavin, left, poses with Kathleen Kelly, director of ‘A Goodnight Kiss.’

Jack Sheedy

Litchfield County playwright Cinzi Lavin’s “A Goodnight Kiss,” based on letters exchanged between a Civil War soldier and the woman who became his wife, premiered in 2025 to sold-out audiences in Goshen, where the couple once lived. Now the original cast, directed by Goshen resident Kathleen Kelly, will present the play beneath the gold dome of Connecticut’s Capitol in Hartford as part of the state’s America250 commemoration — marking what organizers believe may be the first such performance at the Capitol.

“I don’t believe any live performances of an actual play (at the Capitol) have happened,” said Elizabeth Conroy, administrative assistant at the Office of Legislative Management, who coordinates Capitol events.

Keep ReadingShow less
google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.

Hunt Library launches VideoWall for filmmakers

Yonah Sadeh, Falls Village filmmaker and curator of David M. Hunt Library’s new VideoWall.

Robin Roraback

The David M. Hunt Library in Falls Village, known for promoting local artists with its ArtWall, is debuting a new feature showcasing filmmakers. The VideoWall will premiere Saturday, March 28, at 6 p.m. with a screening of two short films by Brooklyn-based documentary filmmaker and animator Imogen Pranger.

The VideoWall is the idea of Falls Village filmmaker Yonah Sadeh, who also serves as curator. “I would love the VideoWall to become a place that showcases the work of local filmmakers, and I hope that other creatives in the area will submit their work to be shown,” he said.

Keep ReadingShow less

A bowl full of stars

A bowl full of stars

A bowl full of stones.

Cheryl Heller

There’s a bowl in my studio where pieces of the planet reside. I bring them home from travels, picking them up not for their beauty or distinction but for their provenance. I choose the ones that speak to me — the ones next to pyramids, along hiking trails, on city sidewalks or volcanic slopes.

I like how stones feel in my hand: weighty, grounding. I don’t mind them making my pockets and suitcase heavier. The bowl is about the size of an average carry-on. It has been years since it was light enough for me to lift.

Keep ReadingShow less
One-woman show brings Mumbet’s fight for freedom to Scoville Library
One-woman show brings Mumbet’s fight for freedom to Scoville Library
One-woman show brings Mumbet’s fight for freedom to Scoville Library

On March 29, writer, producer and director Tammy Denease will embody the life and story of Elizabeth Freeman, widely known as Mumbet, in two performances at the Scoville Library in Salisbury. Presented by Scoville Library and the Salisbury Association Historical Society, the performance is part of Salisbury READS, a community-wide engagement with literature and civic dialogue.

Mumbet was the first enslaved woman in Massachusetts to sue successfully for her freedom in 1781. Her victory helped lay the legal groundwork for the abolition of slavery in the state just two years later. In bringing Mumbet’s story to life, Denease does more than reenact history.

Keep ReadingShow less
google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.

google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.