SPECIAL REPORT: An 'Uncertain' Fed Slows Quantitative Tightening | Axel Merk

**Adam Taggart** (0:02)
Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart. Welcoming you here for another special report following this month's Federal Open Markets Committee guidance, followed by the press conference by Fed Chair Jerome Powell. As usual, I am joined by money manager and Fed expert extraordinaire, Axel Merk. Axel, how are you doing?

**Axel Merk** (0:26)
Good. This is a wonderful relief for a busy day to talk with you.

**Adam Taggart** (0:33)
Thank you. Well, again, I appreciate you taking time in your busy day to make sure that you help make sense of everything we just learned today from my audience. Very quickly, Axel, this one seems like not a lot of surprises out of this one. As expected, the Fed held its main policy rate unchanged at four and a quarter to four and a half. Maybe the one bit of news here is that they cut the pace of quantitative tightening in half. They basically are going to be slowing the roll off of US treasuries from the balance sheet. They're going to continue to roll off mortgage-backed securities at the same pace. You know, a fair amount of talk about the uncertainty, the higher level of uncertainty in the economy right now, a lot of talk about tariffs and, of course, the disruptive Trump policies. Long story short, the Fed is increasing its forecasts for inflation for the year, decreasing its forecasts for economic growth, but pretty minor changes, increasing its forecasts for unemployment, the unemployment rate, again, minor changes.
Not a lot of bombshells this time around. At least that's how I saw it. How do you see it?

**Axel Merk** (1:50)
There is a little bit of a bombshell in them not doing anything. Remember, historically, when the economy slows down, the Fed would become more dovish and cut rates. And indeed, many people said it was dovish, and I think it was Jonathan Farrow on Bloomberg who said, wait a second, this is hawkish. And the reason why he said it's hawkish is that this is stagflationary, and the Fed is not doing anything. There is no Fed easing here. You mentioned it, right? The economy is slowing down in their assessment. Inflation is sticky, maybe picking up a tad. And guess what? The Fed is staying put. And so historically, when the economy slows down, the Fed would ease. And no, they're not doing anything. No. Question maybe why they're not doing anything, but I think that's the first noteworthy thing. The second one is you mention all the terrorists and everything.
Are they not doing anything because they are so super brilliant? Or are they not doing anything because they are like deer that are facing some bright headlights? And I would suspect it's a bit of the latter. He was asked sometime during the press conference what they think about the terrorists. And then Powell was talking, Oh, we got all these models and everything. Well, I think the truth of the matter is that the other may have all these models, but they don't know what to do with them because they have decided that they have no idea and the best cause of action is to do nothing. Now, they can do that because they think in a somewhat reasonable space because they are slightly restrictive and all that. But I think as far as bombshells are concerned, is that, yeah, they say we have stagflation.

**Adam Taggart** (3:33)
Well, a couple of things. One, that word I don't think went out of Jerome Powell's mouth. I didn't hear him mention the word stagflation.

**Axel Merk** (3:42)
He pushed back against that. He was actually asked by one of the journalists, so do you want to try to avoid a repeat of the 70s? And let me see if I find the quote here. As you are facing slower growth and higher inflation, are you heeding the lessons of the 1970s? And then he said, I don't see any reason for replay of the 1970s. And he went on and he said, it's not remotely similar. It's nowhere close to that. So of course, he wouldn't say that.
And if you, we gotta talk, I'm sure about gold a little bit later. If you lay over the gold charts in the early 70s with what's happening now, there is a similarity. Now correlation doesn't create any predictive force, of course, but to shrug it off entirely is may not be prudent. I mean, for a Fed share, of course, it might be the right thing to say, but it's not necessarily the thing that I would count on.

**Adam Taggart** (4:45)
Well, let me ask you this. Now, of course, part of the Fed chair job is to project confidence. But many, many times throughout the press conference, he said, look, we feel like we're in great position, we're close to our targets, we don't feel any time pressure to move before we need to. We feel like we can just wait and see how things unfold and then react to the data. He did say, look, we're less confident in our forecasts because there's so much uncertainty right now, but we're very confident in our positioning and our ability to take the right action as needed. Do you think that that is more like he truly believes it and if he's wrong, it's more hubris or do you think that that's more just like, hey, it's I gotta say this, even though maybe inside, I'm a lot more nervous.