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*                       FIEND'S SUPERBEAR MARKET REPORT                     *

*                                  May 18, 2026                             *

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*                       e-mail: fiendbear@fiendbear.com                     *

*                    web address: http://www.fiendbear.com                  *

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Fiend Commentary
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The Fed’s Inflation Choice

Friday and Monday have delivered the clearest message yet: the old “rate cuts are coming” story is cracking, and the bond market is forcing the issue.

Gold, silver, and miners are still under pressure. Stocks were hit Friday. The dollar is holding firm. Oil is back above $110. And the long end of the Treasury market is no longer merely “edgy” — it is openly challenging the idea that inflation is under control.

The 10-year yield has pushed into the 4.6% area, while the 30-year has moved deeper above 5%. Those are not just bond-market trivia. Those levels affect mortgages, corporate borrowing, private credit, government interest expense, and stock-market valuation. When the long end moves like this, the Fed does not need to hike for financial conditions to tighten. The market does it for them.

That is why the metals are getting hit even though the world still looks unstable. Gold and silver rallied on the idea that inflation, war, money printing, and policy doubt would all support hard assets. But in the short run, a surge in yields and a firmer dollar can overwhelm that story. When cash suddenly pays more and leverage gets squeezed, even “insurance” can be sold.

The bigger issue is that the Fed narrative has flipped almost completely.

A few months ago, Wall Street was still talking about multiple cuts. Now the market is pricing a meaningful chance of a rate hike by year-end. In some measures, the odds have moved above 50%. That is an extraordinary change, and it reflects what the inflation data and oil market have been saying: energy-driven inflation is no longer theoretical, and the Fed may not have the freedom to cut just because growth is softening.

But here is the uncomfortable part: if the economy really starts to sink, does anyone seriously believe the Fed will stand there and do nothing?

That is the trap.

If inflation keeps rising, the Fed should be tightening.
If employment weakens and credit cracks, the Fed will be under intense pressure to ease.
If both happen at the same time, the Fed has no clean answer.

History suggests what policymakers usually choose when forced between deflation and inflation. They choose inflation. Not because they admit it openly, but because deflation breaks balance sheets, banks, credit markets, tax revenues, and political careers. Inflation is painful, but it can be explained away, massaged, blamed on oil, blamed on war, blamed on tariffs, or called temporary.

That may be the real long-term support for gold and silver, even if the short-term trend is ugly right now.

The Fed can talk tough. The market can price hikes. Warsh can promise discipline. Powell can stay on the Board and complicate the “new regime” story. But if credit stress arrives, if layoffs accelerate, if private capital starts seizing up, or if stocks fall hard enough to threaten confidence, the conversation will change quickly.

And we are already seeing the first step in that direction: the balance sheet is no longer shrinking. The Fed calls its Treasury bill purchases “reserve management,” not QE. Fine. But from the market’s perspective, the system has moved from draining liquidity to adding liquidity again. The label matters less than the direction.

That is the contradiction of 2026: hawkish pricing in the rate market, but quiet liquidity support in the plumbing.

Oil is what makes the whole situation worse. The war still has no durable resolution, and crude above $110 is a direct hit to inflation expectations. The longer it stays there, the more the next few inflation reports will reflect it. At the same time, high energy costs squeeze consumers and businesses, which increases the odds of weaker growth later.

So the market is being asked to price an ugly combination:

  • higher inflation,
  • higher yields,
  • firmer dollar,
  • weaker metals,
  • pressured equities,
  • and an economy that may not be strong enough to absorb the hit.

That is why this week feels important. If yields keep rising, the pressure spreads. If oil keeps climbing, inflation fears deepen. If stocks wobble further, the “Fed rescue” trade will start creeping back into conversation — even if nobody wants to say it out loud yet.

The clean version is this: the Fed wants credibility, but the system wants relief.

And if the choice eventually becomes preserving credibility or preventing a deflationary break, do not be surprised if credibility gets negotiated downward.               

 

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