The World’s Biggest Buyer Is Back, and People Don’t Get It

Most investors pay attention to monetary policy given its influence on economic activity and asset prices. However, it is not clear that everyone has appropriately contextualized recent developments from the Fed, which changed its stance in the fourth quarter more than headlines would suggest, likely paving the way for continued economic expansion and higher equity prices.

On December 10, 2025, the Federal Open Market Committee announced its sixth rate cut since the peak range of between 5.25% and 5.50%, a level lasting from July of 2023 until September of 2024. The title of the story appearing above the fold in section A1 the next day in the WSJ read, “Fed Cuts Rates, Signals a Pause.”¹ This apparently hawkish headline, as well as the article’s text, came off as though the Fed was done easing for the time being, which could not be farther from the truth.

News outlets are in the business of generating clicks, which incentivizes controversial, punchy headlines and salacious stories often limited by authors’ perspectives, contextual knowledge or incentives unbeknownst to readers. A punchy headline failing to capture the full story was indeed the case in the aforementioned article, written by “The Fed Whisperer,” a journalist who many investors consider to have the authoritative inside track on machinations within the Fed.²

The article went on to flag dissension around the future path of rate cuts and compared the “pivot” to what happened in December of 2024, when the FOMC cut its target rate and then held steady for almost nine months. It failed entirely to mention the end of quantitative tightening, or allowing treasuries and mortgages owned by the Fed to mature without reinvestment. This liquidity headwind has in fact been in place since the spring of 2022, when the Fed balance sheet peaked at nearly $9 trillion in assets. Between then and December of 2025, policymakers have been draining approximately $50 billion per month in liquidity from the system in an attempt to put a damper on inflation that spiked with demand as humans reemerged from the pandemic only to meet shuttered supply chains. Now, the Fed is expected to purchase at least $40 billion in securities this January, with “tapering” likely to occur later this year.³

The change in monetary policy is far more significant than headlines suggest, as the shift is more akin to what happened in September of 2019, when policymakers reversed course from years of removing liquidity to then firing up the printing presses on the heels of major stress in short-term funding markets. Signs of similar liquidity strains began to crop up this fall as banking system reserves fell to dangerous levels in our view due to a combination of the government shutdown and the aforementioned quantitative tightening.

Despite misguided political attacks about the need to “lower rates,” it appears the underappreciated shift to heavy accommodation from policymakers is the right move. Unlike rate changes, which affect the cost of floating-rate loans and work with more of a lag, direct asset purchases are the fastest and most direct way to shore up liquidity and change behavior throughout the system, especially when those purchases represent a stark reversal of what has been going on for years. Urgency is indeed important — last year, average monthly job growth was nearly 71% below its 2024 level, and the unemployment rate continued to tick higher while the ratio of unemployed workers to job openings dropped below 1.

The good news is the Fed recognizes this and has room to act. According to data from Truflation, which tracks inflation on a real-time basis, the rate of inflation at the end of 2025 was 1.85%, its lowest level in two-and-a-half years, and below the Fed’s long-term target of 2%. Meanwhile, wages in December grew at 3.8%, implying an increase in real purchasing power. The spread between the two-year government note and the ten-year yield, a data point often considered a signal of whether monetary policy is on the right track, ended 2025 at its highest level in almost four years, a very positive sign of what may be to come.

Expanding liquidity, economic acceleration and a strengthening labor market could, if they occur, all bode well for our strategies, which continue to favor small- and mid-cap value names that are more sensitive to marginal economic activity and trade at large valuation discounts to the market as a whole. Remember too that Bitcoin, a technology we have exposure to in our portfolios via an investment in Strategy Inc., also historically has often been a major beneficiary of printing press engagement.

As always, we remain the largest investors in our strategies and thank you for your partnership.

Bill Miller IV, CFA, CMT
January 13, 2026

¹Source: Wall Street Journal. Headline quoted for identification purposes.
²We use this nickname as it appears in common market commentary; it is not intended as an endorsement.
³A story buried in a later section of the WSJ with the generic title, “Balance Sheet Expansion to Start” provided more detail around future asset purchases while noting, “The renewed bond-buying isn’t intended as part of the Fed’s actions to steer the economy.” (Quotation provided for context.)

This commentary reflects the views of the author as of the date above and is subject to change. There is no guarantee that any forecast, outlook, or opinion will be realized. This material is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. Statements containing ‘may,’ ‘could,’ ‘expect,’ ‘likely,’ or similar words are forward-looking and involve risks and uncertainties. Actual outcomes may differ materially. Information from third-party sources is believed to be reliable but is not guaranteed as to accuracy or completeness. References to specific investments are for illustrative purposes only and are not a recommendation to buy or sell any security. Portfolio holdings and positioning are subject to change. It should not be assumed that any investment in the securities referenced was or will be profitable.

Figures cited above should be verified against primary sources (e.g., Federal Reserve releases) and may reflect market estimates. Statements reflect our interpretation of public data; exact figures may vary by source and revisions.

Truflation is a third-party data provider; methodologies differ from official measures (e.g., CPI/PCE). Past relationships among inflation, wages, and yield curve measures are not reliable predictors of future market outcomes.

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