Craig Hemke, Founder and Editor of TF Metals Report, joins us to discuss his general outlook on how Fed policy will affect interest rates, the bond markets, general equities, and the precious metals in 2022. We start off discussing interest rate, bonds, the TIPS reaction to recent FOMC meeting minutes released on Wednesday afternoon, and the volatile whipsaw reaction in other markets. Craig mentioned he could see the early part of 2022 just being a continuation of what we have been seeing in 2021, but then believes that when Jerome Powell does start hiking rates in the Spring that this will shift things and for the PMs it may be more like 2010 or 2019 where the action was all in the latter half of the year.
Next we opined on where the buying in US treasuries would come from once the Fed removes their billions of dollars of monthly accommodative buying, and Craig felt some of it may come as a safe have reaction if there was a corrective move in the general markets due to rising rates, which would essentially flatten out the yield curve again. Craig also expanded on the idea that since there is so much central bank liquidity being injected into all markets that at times all markets are responding in unison like a “universal chart.” To that point, even if there is a correction in most markets due to the anticipation of a rate hike, that he could see gold recovering first, but still expects the Powell to backstop the markets and that they’ll also recover, and that both asset classes could move up in tandem.
We highlight the challenges that may arise if the central bank is about to hike into slowing growth and slowing economy, with the backdrop of persistently high inflation in prices, energy, and wages, and how it could be a policy error to start hiking into that stagflationary backdrop, while “inflation expectations” rise and take root. There is a spirited debate about why there may finally be a loss of confidence in the central bank, and how even main stream generalist investors may look through Fed jawboning at how high and how long the rate hiking cycle can go before needing to reverse course again.