Fed’s Next Move Revealed: When Is Rate Cut Coming? | Axel Merk
TL;DR
Axel Merk discusses the uncertain transition from Powell to Kevin Warsh at the Fed, explains why gold remains essential despite frustrating short-term correlations with equities, and argues that current oil supply shocks pose limited recession risk due to structural economic changes.
🏛️ Fed Leadership Transition 3 insights
Powell's potential forced exit
Trump may attempt to fire Powell if he doesn't resign by May, creating constitutional uncertainty that may require Supreme Court resolution regarding the President's authority over Fed governors.
Warsh policy alignment underway
Powell has preemptively adopted Warsh's priorities including productivity boom rhetoric and communication strategy reform, effectively preparing the institution for leadership transition.
Independence premium
Central bank autonomy lowers borrowing costs by preventing markets from demanding risk premiums on politically influenced monetary decisions.
🥇 Gold Investment Strategy 3 insights
Maintaining heavy exposure
Merk remains heavily invested in gold and miners despite recent price run-ups, having sold only minimal personal holdings while maintaining fund mandates requiring sector participation.
Resisting market timing
Precious metals funds must remain invested through volatility rather than attempt to time entries and exits, managing risk via hedging within sector confines.
Cash competition dynamics
Gold's short-term price pressure correlates inversely with real interest rates, as rising rates increase the relative value of cash versus bullion.
⚠️ Geopolitical & Macro Risks 3 insights
Policy reaction drives gold
Gold rallies when policymakers implement economically unsound interventions like price controls or stimulus checks in response to supply constraints rather than from the shocks themselves.
Reduced recession vulnerability
The modern service-based US economy and domestic energy export capacity reduce recession vulnerability to oil price spikes compared to historical precedents.
Temporary disruption pricing
Markets view Iran Strait of Hormuz risks as transient, with potential disruption costs of $1-2 per barrel being absorbable by global producers without derailing growth.
Bottom Line
Maintain strategic gold exposure as a hedge against policymaker errors during supply shocks, but resist the urge to time entry/exit points given the asset's inherent volatility and shifting correlations.
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