12 January 2026: Weekly Update – Repricing Risk in US Markets

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Weekly Update

Economic Outlook

The opening to 2026 has been marked by an unusually rapid pace of policy disruption emanating from the US administration. Across trade, fiscal policy, and geopolitics long-standing assumptions are being tested. Although financial markets are accustomed to political noise, the speed and breadth of recent interventions appear to have shifted up a gear.

Nowhere is this more evident than in the pressure being applied to the US Federal Reserve. Over the weekend, it emerged that the US Department of Justice has served the Fed with grand jury subpoenas relating to Chair Jerome Powell’s congressional testimony on the central bank’s headquarters renovation. Powell responded by warning publicly that monetary policy risks moving away from evidence-based decision-making toward outcomes shaped by “political pressure or intimidation.” With Powell’s term expiring in May and US President Trump signalling that any successor must support “significantly lower borrowing costs”, the independence and predictability of US monetary policy has become a growing concern for markets.

Investor reaction has been swift. Gold and silver have pushed to new highs, the US dollar has softened, and US equities have come under pressure as markets begin to price a higher risk premium into American assets - a signal that institutional uncertainty is no longer being ignored.

Gold Price: Last 6 Months

Source: LSEG Workspace. To time of writing on 12 January 2026.

That uncertainty has been compounded by the administration’s decision to launch a US$200bn mortgage-backed securities purchase programme via Fannie Mae and Freddie Mac. Explicitly designed to bypass the Federal Reserve and force mortgage rates lower, the programme amounts to quantitative easing conducted through the US Treasury rather than the central bank. While the immediate effect is stimulatory - compressing mortgage spreads, supporting housing activity and underpinning consumption - it further blurs the boundary between fiscal and monetary policy, raising questions about governance and long-term credibility.

Geopolitics adds an additional layer of complexity. Escalating rhetoric towards Iran, claims surrounding a US$4.2bn Venezuelan oil deal, and renewed insistence on US ownership of Greenland as a strategic necessity all point to a more assertive and unpredictable foreign policy stance. While these developments are not yet systemic risks in themselves, they contribute to an environment where uncertainty premiums are likely to remain elevated.

For investors, the implications are nuanced. In the short term, US assets continue to benefit from powerful fiscal stimulus, including higher defence spending and targeted support for domestic sectors. These forces can, and likely will, offset some of the market’s institutional concerns over the coming quarters. However, over the longer term, sustained political intervention in monetary and economic frameworks is typically associated with higher risk premiums, weaker relative asset performance and greater volatility. History suggests that while markets can absorb disruption for a time, structural uncertainty ultimately dominates cyclical stimulus.

Currency exposures in the T. Bailey funds of funds in percent

Source: T. Bailey, LSEG Workspace.

Within the T. Bailey funds, this backdrop reinforces our emphasis on diversification, valuation discipline and resilience rather than outright macro bets. We remain selective in US exposure, focused on companies with strong balance sheets and durable cash flows, while maintaining meaningful exposure to real assets and non-US opportunities that can benefit from a less stable global policy environment. In periods where policy direction is fast-moving and institutional guardrails are tested, we believe a disciplined, risk-aware approach is the most effective way to protect and compound capital over the long term.

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