Summary of "SPECIAL REPORT: Under-Fire Fed Keeps Interest Rates Flat | Axel Merk"

SPECIAL REPORT: Under-Fire Fed Keeps Interest Rates Flat | Axel Merk

Key Finance-Specific Content Summary

Federal Reserve & Monetary Policy

Fed Decision: The Federal Reserve held interest rates steady as expected. Two dissenters, Steven Mirren and Christopher Waller, favored rate cuts. Market expectations for rate cuts in 2026 have diminished, now pricing roughly two cuts for the year.
Fed’s Economic Outlook: The Fed upgraded its view, stating economic activity is expanding at a “solid pace.” Inflation remains elevated, but upside risks to inflation have moderated. The Fed removed previous language about downside risks to employment, noting job gains remain low but unemployment rates are stabilizing.
Jerome Powell’s Stance: Powell emphasized no forward guidance on rate moves, maintaining a data-dependent approach. He noted uncertainty about the neutral rate but suggested the Fed is moving closer to it.
Political Pressure: The Fed faces political pressure, including a DOJ lawsuit against Powell and concerns about Fed independence. The lawsuit is seen largely as a political tactic with limited practical effect given Powell’s lame-duck status.
Fed Independence: Axel Merk stresses the importance of Fed independence to maintain credible monetary policy and anchored inflation expectations. Loss of independence risks fiscal interference and uncontrolled money printing.
Candidates for Fed Chair:
- Kevin Walsh: Favored by Axel for consistent criticism of Fed overreach and focus on reforming Fed communication and policy discipline.
- Rick Reer: Rising in probability but viewed skeptically due to preference for lower rates and more active balance sheet use, potentially increasing Fed politicization.
- Christopher Waller: Independent thinker, prudent but unlikely to push Fed reforms.
- Kevin Hassett: Likely out of the race.
Market Reaction to Chair Race: Gold prices have reacted to shifts in Fed chair probabilities, notably soaring when Rick Reer’s chances rose.

Macroeconomic & Fiscal Context

Governments in the US, Europe, and Japan are increasing infrastructure and military spending amid large deficits (6%+ in the US). There is no serious discussion of cutting social spending to finance this.
The 10-year US Treasury yield is around 4.24%, with a real yield near 1.88%, indicating contained market confidence in the Fed.
Tariffs and geopolitical tensions reduce foreign demand for US debt, impacting liquidity and bond yields. The “exorbitant privilege” of the US dollar is under pressure.
Despite rising gold prices, inflation expectations and bond markets remain relatively stable, suggesting no loss of confidence in central banks yet.

Precious Metals & Mining Sector

Gold & Silver Price Action:
- Gold futures broke above $5,400/oz, a new high shortly after surpassing $5,000/oz.
- Silver is near all-time highs, with significant price volatility.
- Spot gold was up approximately $237 (4.58%) during the discussion.
Drivers of Precious Metals Rally:
- Loss of confidence in fiscal sustainability rather than central banks.
- Small market size means small capital flows cause large price moves.
- Central banks continue to buy gold, though data is lagging and incomplete.
- Asian demand remains strong; new Western buyers are reallocating from bonds to metals.
- Speculation is present, but fundamentals (deficits, geopolitical risks) support higher prices.
Market Structure:
- Physical coin dealers report record activity, mostly from sellers taking profits or cashing gains.
- Wholesale dealers see increased supply as holders cash out.
- China’s precious metals markets show signs of speculative volatility, especially in derivative products.
Miners vs Metals:
- Mining stocks have lagged metals price appreciation; silver miners especially show little leverage effect.
- Mining fund assets under management (AUM) grew from about $300 million in 2019 to over $1.6 billion currently, mostly from internal performance rather than new capital.
- Valuation of miners is conservative; contracts often include supplementary payments if metal prices stay high.
- Costs (energy, labor, taxes) remain contained, helping margins.
- Money flows first to major miners, then juniors; majors had underinvested but are improving.
- Axel Merk holds significant gold mining positions and remains optimistic despite volatility.
Risk Considerations:
- Precious metals and miners are volatile; investors must assess risk tolerance.
- Concerns exist about a potential blowoff top or sharp correction, but current fundamentals differ from past busts.
- The rally is seen as a “canary in the coal mine” signaling fiscal and geopolitical risks.
- Gold is viewed as insurance and a portfolio diversifier, especially given doubts about bonds as a safe haven.
Investor Behavior:
- Precious metals remain underowned in typical portfolios (1–2% average, median zero).
- New buyers are cautious; many are selling to take profits.
- Retail demand is price sensitive; central banks are less so.
Recommendations:
- Investors should consider precious metals as part of a diversified portfolio for risk management.
- Seek professional financial advice tailored to individual goals, tax situations, and risk tolerance.
- Monitor market developments closely and be prepared for volatility.

Methodologies / Frameworks Mentioned

Fed Chair Evaluation: Assess candidates based on policy stance, reform agenda, and impact on Fed independence.
Precious Metals Investment: Consider physical metals, ETFs, and mining stocks. Evaluate miners based on metal price forecasts, cost structure, and contractual terms. Monitor supply/demand dynamics including central bank buying, retail flows, and geopolitical factors.
Risk Management: Balance offense (growth opportunities) with defense (hedging, diversification). Assess personal risk tolerance, especially in volatile sectors like mining.
Macro Analysis: Use bond yields, real yields, inflation expectations, and currency flows as indicators of fiscal and monetary confidence. Watch geopolitical spending trends and fiscal deficits as drivers of market risk.

Key Numbers & Timelines

Gold Price: $5,400+ per ounce (futures), spot up approximately $237 (4.58%) during discussion
Silver Price: Near all-time highs; silver product in China trading at a 40% premium
10-Year Treasury Yield: ~4.24%
10-Year Real Yield: ~1.88%
Mining Fund AUM: Grew from $300 million (2019) to $1.6 billion+ (2024)
Fed Rate Cuts Expected: Approximately two cuts priced in for 2026
Deficits: US fiscal deficits projected at 6%+ for the foreseeable future
Fed Chair Transition: Powell’s term ending soon; candidates include Kevin Walsh, Rick Reer, Christopher Waller

Disclaimers & Disclosures

Axel Merk wears a compliance hat and cannot accept endorsements.

Commentary is not financial advice; viewers are encouraged to seek personalized advice.

Market data (e.g., gold prices) may vary by source (Bloomberg, futures vs spot).

Fund performance and holdings mentioned are public record; no specific investment advice is given.

Precious metals markets are small and volatile; price moves can be amplified by small flows.

Retail investor behavior is distinct from institutional/central bank behavior.

Political and geopolitical developments can impact markets unpredictably.

Presenters / Sources

Adam Tagert: Host, Thoughtful Money founder
Axel Merk: Fed watcher, precious metals and mining fund manager, founder of Merk Investments
Michael Oliver: Precious metals expert with an upcoming interview
Other Mentioned Figures:
- Jerome Powell (Fed Chair)
- Steven Mirren, Christopher Waller (Fed dissenters)
- Kevin Walsh, Rick Reer, Christopher Waller, Kevin Hassett (Fed Chair candidates)
- Bill P (former St. Louis Fed President)
- David Malpass (World Bank President)
- Treasury Secretary Bessent (commented on dollar policy)
- Rick Rule (precious metals investor)

Summary

The Federal Reserve held rates steady amid political pressure and economic optimism, with market expectations for fewer rate cuts. Precious metals, especially gold and silver, have surged due to fiscal deficits, geopolitical tensions, and a loss of confidence in fiscal sustainability rather than monetary policy. Mining stocks have lagged metals but show potential value amid contained costs and increased institutional interest. Fed chair succession remains uncertain, with candidates differing on policy and reform. Investors are cautioned to balance risk and seek professional advice, as volatility and market dynamics remain complex and fluid.