Should the Fed Stop Setting Interest Rates?

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The Fourth Turning isn’t just a dusty history book on your parents’ shelf; it’s a live script playing out in markets right now.

We’re in a generational reset where trillions in capital are set to move, and the way money flows—not just what’s “valued”—is warping every chart you thought you understood.

1. Generational Reset: The Fourth Turning in Real Time

Every 80–100 years, societal tectonics shift: upheaval, renewal, and the creation of new norms. Neil Howe and William Strauss coined the term, but Gen Z is living it.

War, political upheaval, pandemic aftershocks, and a tech/AI revolution mean today’s 20- and 30-somethings are coming of age in constant disruption.

The result?

• Deep skepticism toward top-down narratives.
  
  
• Preference for tangible assets, such as commodities, and ideological assets, like cryptocurrencies.
  
  
• A baseline assumption that crashes are normal, not exceptions.
• Profound distrust of governments and central banks that have built a system that does not align with their interests. Should the Feds stop setting interest rates?

2. Wealth Transfers: Tsunami or Mirage?

The “Great Wealth Transfer” — estimated at $70 trillion — is not just about size, but about destination.

Younger generations are:

• Prioritizing digital assets, non-traditional investments, and ESG/impact projects.
  
  
• Building and engaging with digitally native family offices and advisors.
  
  
• Demanding liquidity, which feeds into the ETF and passive index boom.
• Strong conviction that Wall Street should no longer be calling all the shots: wealth managers are boomer-aligned.

This isn’t a smooth trickle; it’s a structural tide that will reshape capital markets for decades. Why Fear Stops People From Investing

3. The Passive Machine: Indexing, Herds, and the Mirage of Liquidity

Passive funds (BlackRock, Vanguard, ETFs) allocate automatically: every paycheck into the same stocks, same weights, every two weeks.

• Strength: Keeps markets bid and dampens volatility—for now.
  
  
• Weakness: Price signals degrade, bad companies rise with the good, and risk premiums flatten.
  
  
• Impact: Valuations disconnect from fundamentals, rotations surprise even seasoned traders. Market Clichés Unpacked: Wisdom or Fool's Gold?
  
  

4. Private Credit & Private Equity: The Hidden Hand

When banks pulled back after the last crisis, private capital stepped in and never left.

Now, with cheap money gone, these funds influence everything from small business lending to infrastructure ownership:

• Returns engineered: Often marked to model, not market.
  
  
• Signal distortion: More assets are private, making public market data an incomplete picture.
  
  
• Cycle risk: Private capital delays pain, but when it hits, corrections can be brutal and sudden. Real World Macro: When Reality Bats Last
  
  

5. Why It Matters: The Fearless Playbook

• Gen Z invests differently: They’ll move to tokenized, transparent platforms and act quickly when trust wavers. Digital Gold, AI Grids, and The New Age Of Reserve Assets
  
  
• Wealth transfer = volatility spike: New hands, new rules, new asset preferences.
  
  
• Passive crowd risk: When everyone’s in the same trade, the exit gets crowded fast.
  
  
• Private capital risk: Less transparency means delayed bad news and faster snapbacks.
  
  

Bottom Line

Markets are being shaped less by valuation metrics and more by generational capital flows, passive indexing, and opaque private markets. The Fourth Turning isn’t coming; it’s here.

Your edge? Spotting where the real signals are and knowing when the crowd’s “safety” is the actual risk, and the received wisdom is yesterday’s playbook.

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Your trading screen gives you the illusion of control. You can rebalance, monitor, buy, and sell. You feel in charge.

But then the sink backs up. Or you get the flu. Or you’re told we can’t upgrade the electrical grid because… there aren’t enough welders.

This is what macro really looks like—messy, physical, inconvenient. It isn’t just data and charts. It’s plumbing, supply chains, demographics, and geopolitics.

Try coding your way out of a clogged drain.

Macro Isn’t Just Theory. It’s the Terrain.

We like to think markets are driven by logic, sentiment, or central bank policy. But real-world constraints shape the battlefield. Consider:

• We need to rebuild manufacturing and mining capacity. You can’t “reshore” factories without robots—or people to build the robots.
  
• Wastewater surveillance is how we now track public health. When no one tests for Covid, the plumbing goes hi-tech.
  
• We can’t build out the grid without skilled trades. And we’ve oversold 4-year degrees while underinvesting in vocational skills.
  
• Fiat currencies are being quietly debased. The illusion of wealth grows, but so does the fragility underneath.
  
  

These aren’t headlines. They’re underlying forces that drive markets—long before you notice them on your Bloomberg terminal.

The World Is Repricing Risk

What would’ve happened if the Israel-Iran conflict lasted two more weeks? Israel was reportedly close to running out of ammunition.

U.S. officials now openly admit: we can’t fight multiple wars simultaneously. We don’t have the weapons—or the domestic capacity to build them fast enough.

China controls the rare earths. They can squeeze supply whenever it suits them.

Fertilizer supply? Fragile. And without it, global agriculture teeters.

These are macro constraints with micro implications. And they don’t come with a tidy UI.

Your Portfolio Is a Window to Your Worldview

So… how do you structure a portfolio to reflect this reality?

You start at the top:

1. Macro cycles
   
2. Relative GDP strength
   
3. Inflation trends
   
4. Global liquidity
   
5. Geopolitical risk
   
6. Trade flows
   
   

Then you look for signal.

You listen to smart macro voices, not TikTok talking heads.

You track the cycle, not the clickbait.

And then you ask:

How do I position for resilience? What do I actually want to own?

Gold, Bitcoin, and What to Watch

• Are we in a commodity supercycle?
  
• Why are central banks hoarding gold?
  
• Should you own gold via ETFs or physical?
  
• What about Bitcoin—cold storage or fund format?
  
• Can China’s robot army offset its demographic collapse?
  
• What happens if Taiwan chip exports suddenly stop?
  
  

This isn’t just theory. It’s portfolio input.

Kahneman, Bias, and the Illusion of Skill

Daniel Kahneman (RIP, March 2024) gave us the lens to think about this. Thinking Fast and Slow isn’t just a behavioral finance classic—it’s an investment survival guide.

System 1 is fast, reactive, emotional.

System 2 is slow, analytical, disciplined.

When markets lurch, which system are you using?

Common Biases That Hurt Investors:

• Anchoring – Fixating on arbitrary price points
  
• Loss Aversion – Overreacting to small downside risk
  
• Regret Aversion – Making irrational trades to avoid missing out
  
• Confirmation Bias – Only seeing data that supports your thesis
  
• Overtrading – Confusing action with strategy
  

Micro Tip: Don’t Overcomplicate Trades

Obsessing over a $0.99 vs $1.01 entry point? Been there.

What difference does it make if you’re holding for a 10X gain?

If the bid-ask is wide, buy at the ask and move on.

Watch order size. Accumulate gradually if needed.

Don’t be conspicuous in the market, especially with small market-cap stocks. Be deliberate. 

Watch trade volumes and buys or sell inside them.

Final Thought: Reality Always Wins

Your model is only as good as the inputs.

Your strategy is only as strong as the assumptions you check.

Macro isn’t just theory. It’s the terrain you’re trading on.

And reality, as they say, bats last.

📈 Want a portfolio that responds to macro signals instead of gambling on timing

Want to surround yourself with other clear-eyed investors?

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Every investor is watching Jerome Powell. Again.

Powell’s term expires in May 2026. Chances Trump extends it? Near zero.

Trump and Treasury Secretary have pivoted away from debt reduction to growing GDP to outrun debt growth. That’s inflationary.

But here’s the thing: the Fed is no longer the fail-safe. With war, debt, and political chaos on every front, the Fed is playing defense, not offense. The old playbook of “watch the Fed, ride the market” is broken. It’s different.

Here’s what’s changed:

• Bond vigilantes are back. The market is calling BS on unlimited stimulus.
• Geopolitical tensions are now investment risk factors, especially in energy and commodities.
• The debt isn’t just a number. It’s a future tax. And markets know it.

Let’s take a deep dive into these issues

Source: U.S. Treasury

• Rising Interest Payments: The U.S. government’s annual interest payments on debt have surpassed $1 trillion, exceeding expenditures on major programs like defense and Medicaid. This surge raises concerns about the sustainability of fiscal policies.
• Elevated Treasury Yields: Yields on 30-year U.S. Treasury bonds have climbed above 5%, the highest since 2007, indicating decreased demand and heightened risk premiums.
• Persistent Inflation Risks: Despite some moderation, inflation remains a pressing concern. Federal Reserve officials have expressed caution, emphasizing the need to maintain current interest rates to combat ongoing inflationary pressures. The new normal is going to 3%—a likely condition for the next Fed chair to sign off on.
• The Fed faces an unprecedented dilemma:
  • Traditional toolkit: higher rates cool the economy
  • Today’s debt levels do the opposite: increased rates => higher GDP
  • Stock market gains and IRA withdrawals fuel federal receipts
  • Falling receipts drive deficits
  • The Fed has to support the stock market, but how?
  • Yield curve control is coming
• Geopolitical Tensions: Escalating trade disputes and geopolitical conflicts are contributing to economic uncertainty, affecting global supply chains and investor confidence.

Implications for Investors:

The confluence of these factors suggests that traditional investment strategies may require reevaluation. Relying solely on conventional asset allocations could expose portfolios to heightened risks in this evolving economic landscape.

60/40 meant bonds outperformed when stocks went south—an allocation hedge. Bond vigilantes still act as a brake on policy excess, but we have entered a structural bear market in bonds.

Bonds may offer short-term trading opportunities as a temporary refuge from market panic, but those trades don’t last.

If your portfolio is still built around the Fed as your safety net, it’s time for a wake-up call.

Sure, the Fed has to backstop the stock market, but you have to know when and how.

Want to build an allocation strategy that actually protects your capital? Book a strategy call with Dakota Ridge Capital.

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