Chris Puplava: We Could See the Fed Pivot by Fall

Tom welcomes Chris Puplava CEO of Finacial Sense Wealth Management to the show. Chris discusses how Fed rate hikes don't always result in recessions. Chris argues there is no spare capacity in the economy to compensate for any slowdown and therefore the Fed is limited in it's ability to bring inflation under control. The November elections are always a factor and it seems like the Fed won't tighten aggressively into the fall.

Mortgage rate hikes are beginning to impact the housing markets. The interest rate pain threshold with each debt cycle has been more pronounced with every cycle.

The main inflation components today are on the supply side and a result of global shocks. Powell can't do anything about the supply of commodities and inventory levels are at or near decade lows. Naturally it takes time for manufacturing to compensate for these distortions. We're likely to see disruptions in the financial markets before the Fed reaches it's inflation goals.

The Fed can have plans but a lack of foresight often causes them to reverse their policies once something important breaks. The junk bond markets were seizing up back in 2018 and for a time the Fed appeared oblivious. This resulted in the Powell pivot in the first week of 2019.

He explains how the ISM manufaccturing index functions as a measaure of economic momentum. The Fed appears to follow this fairly close as it's a near realtime indicator.

This year the economy appears to be slowing as shown by the ISM index before the Fed began to raise rates. Institutions have been trying to dump various securities and bonds. He believes that rates are in the process of peaking right now.

Cash is the best defensive asset at the moment and it will be of most use when it's time to pick up bargains. He expects gold to rally while the dollar weakens later this year.

Talking Points From This Episode

* Why the Fed will likely pivot before the fall elections.* The causes of inflation and why the Fed can't influence it much.* Cash positions and outlook for gold toward the end of this year.

Time Stamp References:0:00 - Introduction0:33 - Fed Cycles & Recessions5:19 - Fed & Inflation9:34 - Fed Course Reversal?16:05 - ISM Metrics & Slowdowns30:03 - Debt & U.S. Treasuries32:55 - Safe Havens & Cash36:12 - Wrap Up

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Chris graduated magna cum laude with a B.S. in Biochemistry from California Polytechnic State University, San Luis Obispo. He joined Financial Sense® Wealth Management in 2005 and is a Chartered Retirement Planning Counselor (CRPC®) with the College for Financial Planning. Chris is also currently a level III Chartered Financial Analyst candidate. His professional designations include FINRA Series 7 and Series 66 Uniform Combined State Law Exam. He contributes articles to Financial Sense as well as occasional interviews and updates on Financial Sense Newshour.