Axel Merk, president and chief investment officer at Merk Investments, joins the podcast to discuss his views on the Federal Reserve (and potential 'Fed pivot') ahead of next week's FOMC meeting and the stage of the economic cycle,
Highlights:
The Fed meets next week: will it be 75bps or 100bps? (0:36);
Where we are in the economic cycle especially vis-a-vis a recession (2:24);
When might the Fed be able to pivot? Signals to watch (2:55).
Not intended as investment advice.
Transcript
Nathaniel E. Baker 0:09
All right. Last question for now on the Fed they meet next week. What are we going to do?
Axel Merk 0:41
Well, we have now a Wall Street Journal reporter that tells of each time what's going to happen.
Nathaniel E. Baker 0:49
Yeah he's pretty good.
Axel Merk 0:50
He says 75 basis points. And that's what the market the market is pricing in a tad more than a pricing in the risk of 100. What do I know? Right? I can just read the tea leaves as well. But the Powell Fed has been one has been very interested in in guiding the market and not shocking the market. Keep in mind, this entire tightening thing only works out if the market behaves. And we've had some very rough days in the markets. But as many people have pointed out, the VIX the volatility index has still been contained. I don't think Powell wants to risk the vix index blowing out. That's the last thing he wants to have. He's okay with the Dow plunging 1000. If it's orderly and everything is contained, his job is not to manage the stock market. But if the mix blows out, it has implications far beyond the s&p. And that will get his attention. And so he will, in his internal discussions get a lot of pushback against that data. And by the way, the the Kansas City Fed she, Esther George, she descended earlier this year, she's very hawkish. But the reason why she sent it is because her mantra is financial stability is most important. And so she was already concerned about 75. She is gonna have a fit, if they go to 100 now, obviously, it's Powell's call, not her call. But they are very worried about how the market is going to react and very worried about what's priced in. And what's the market coming down. They're getting their message across, right.
Axel Merk 2:24
And if I look forward to where we are in the economic cycle, some things are good, some things are falling off a cliff, we will get to a recession. But at this stage, I don't think the official recession has started yet. And I certainly don't think we're two thirds through this. We don't even know yet where the light of the tunnel is right? We're usually we bottom when there's a sense of the Fed pivoting for one reason or the other. And we're not there by any stretch of the imagination.
Nathaniel E. Baker 2:55
When do you think the Fed can pivot?
Axel Merk 2:58
Well, when the wheels fall off, then the Fed will pivot. And we don't know when that happens. That can happen, of course and on short notice. But the thing to watch for is the one of the one of the many things we can watch, which is the foreign exchange lines that the Federal Reserve gets when federal and the Federal Reserve's comes to the rescue of other central banks. That is, that is a sign that enough is enough, we need to make sure that this world is functioning. And you mentioned the reduction that we've been talking about the dollar that may be the big secular change in the dollar that we finally have, have come to an end of the dollar squeeze and the Fed is providing the liquidity for for an unleashing of of every inflationary environment. Right. So that to me is is an obvious point to watch what might be honest but that that will be the most obvious pivot point.
Axel Merk on Fed Meeting, Economy (Members-Only Exclusive)