(Kitco News) Lyn Alden, macro strategist and founder of Lyn Alden Investment Strategy, breaks down the Fed’s quiet pivot and why the ‘gradual print’ is now underway, in an exclusive interview with Kitco News.
The Federal Reserve’s halt to its balance sheet runoff on December 1 marked a significant shift in liquidity conditions, even as major indices continue to hit record highs. According to Alden, the U.S. economy is being held up by narrow forces while broader participation weakens.
She said the divergence between the market’s headline strength and the performance of most companies has created a split economy driven by two engines: fiscal transfers and artificial intelligence investment. “Any investment or trend that is on the right side of those forces is generally in pretty good shape,” Alden said. Entities outside those flows, she added, “are suffering. They are dealing with a tighter monetary policy.”
Emerging Market Lite Dynamics Take Hold
Alden described the current environment as increasingly resembling an emerging market structure, in which developed economies that run large fiscal deficits and carry high public debt begin to take on stagflationary features rather than the typical disinflation associated with slowdowns.
She also noted that stocks priced in dollars still appear strong because the currency is weakening, while stocks priced in gold look more reflective of a strained consumer backdrop. The split between asset prices and lived economic experience is becoming more pronounced, according to Alden. She described “the current macro environment as more of a social issue than a macro issue,” pointing to political frustration even as headline GDP remains firm.
Fiscal Dominance and the Fed’s Halt to QT
A key theme in Alden’s December research is fiscal dominance, defined as a condition where high deficits and rising interest costs limit central bank flexibility. She notes that late-November funding pressures played a central role in the Fed’s decision to stop quantitative tightening sooner than expected.
“They had been sucking liquidity out of the system,” she said, pointing to the Treasury General Account rising above target during the shutdown, combined with uneven liquidity across money markets, which forced use of the Fed’s standing repo facility.
The halt is consistent with the Fed’s previously published projections that balance sheet runoff would end around 2026, though Alden said this shift arrived “a few months early.” She expects balance sheet expansion to resume next year in line with nominal GDP growth. The change will not be marketed as stimulus but will function as ongoing support for Treasury and repo market plumbing, referring to this next phase as the “gradual print.”
Gold’s Breakout and the Post-WWII Dollar Bubble
Gold’s move above $4,000 this year outpaced Alden’s expectations. She attributed the breakout to reserve managers shifting toward neutral assets such as gold after years of relying on U.S. sovereign debt.
Alden said this is part of a longer transition away from what she calls the “post World War II dollar bubble,” a system in which global reserves were heavily concentrated in U.S. assets. She said sovereign demand for gold reflects a reconsideration of counterparty risk rather than a classic inflation hedge.
Bitcoin’s Correction and Changing Market Structure
Bitcoin’s retreat from its October peak occurred even as some sovereign wealth funds continued to accumulate, according to Alden, who notes that flows exist but remain modest compared to the selling pressure created by long-term Bitcoin holders. “When Bitcoin does really well, and it is very liquid… You generally see some of them selling some of their position,” she said, comparing the dynamic to early investors in a successful company reducing concentration as valuations rise.
She also pointed to corporate treasury premiums unwinding. “I do not think that the three times M NAV it was trading at was sustainable,” she said, adding that some companies in the space “were kind of poorly capitalized or poorly run.” She believes several stronger firms still make sense as long as they maintain conservative balance sheets.
Alden does not believe Bitcoin remains tied to a strict four-year cycle, noting that the market structure has materially changed since previous halving eras.
The Utility Trap in Crypto
Alden’s December letter, “Why Most Cryptocurrencies Will Not Accrue Value,” argues that utility-based crypto assets resemble the economics of ETF issuers or stock exchanges. Those entities process trillions in activity yet capture limited value.
“There is a lot of competition between utility protocols,” she said, emphasizing that the overall market value of such networks is unlikely to grow large because their economic function is closer to low-margin infrastructure. By contrast, she said Bitcoin is purchased “for its own sake,” giving it monetary rather than utility characteristics.
Private Credit Risks and the 2026 Outlook
Alden views private credit as an area to watch, noting that underwritten standards have weakened and margins compressed, but emphasized that the sector is too small to threaten the broader financial system. She said tariffs modestly reduce the deficit but do not change the structural trajectory of federal borrowing.
Her base case for 2026 is a gradual expansion of liquidity and continued concentration in market leadership, though she expects valuation and CapEx dynamics to shift. She has trimmed exposure to high-growth mega caps and rotated into more conservatively priced names.
Alden said the biggest factor she is watching is whether AI investment slows in 2026. A softening, she said, would weaken one of the two pillars supporting the economy.
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