You're listening to Strictly Business Podcast with Lindsay Williams.
The US Federal Reserve concluded its first meeting of 2026 on Thursday evening
European time and they
did absolutely nothing.
With me now is Philip Saunders who is Director, the Investment Institute at 91
in London.
Philip, they did nothing, the Fed that is, but the markets did quite a lot or certain
markets did quite a lot.
But let's get back to the Fed first.
They left rates unchanged.
And from what I can see, Jerome Powell, the chair of the Fed, did very little
afterwards with his speech.
Yeah, I mean, I think that they are sort of caught because on the one hand,
the unemployment numbers have been pretty weak, which is one of the things that
they're pretty focused on,
if you like, sort of job creation.
And the jobs numbers have been unusually, you know, signalling that growth is very
weak,
whereas actually headline growth has been OK.
So that's a bit of a conundrum.
But weak job numbers, you know, possibly suggesting that the
U.S. economy is actually going to weaken is clearly a concern of the Fed, because
the Fed basically have policy settings still, you know,
on the tight side of neutral.
OK, even though they reduce rates again a couple of times in the autumn,
the monetary conditions are still, you know, actually somewhat on the tight side.
On the other hand, they remain concerned about inflation and to actually cut rates
too much.
you know, runs the risk of inflation sort of lighting up again.
And that's another part of their mandate.
So it's a sort of balancing act.
They have chosen to be relatively cautious, obviously not, you know,
that's not going to go down particularly well with President Trump,
because they want more evidence that inflation really is coming down.
The recent numbers have been fantastic, pointing in the direction of, you know,
basically inflation being broadly at target.
for the Fed.
So we'll see.
Obviously, power leaves in May.
And so it may well be that we sort of sit on our hands and that the incoming Fed
chair has to make the decision.
By then, they will have emphatic evidence on the inflation front.
And we believe that inflation is going to continue to come down and be pretty soft,
because the labor market is really,
really actually quite weak at the moment.
And actually, they really should be cutting already.
But the Fed is going to be cautious about this in the same way that they were
cautious about raising rates
when inflation was clearly a problem.
So, you know, again, basically that calls into question the way the Fed actually
takes these decisions.
But that's another discussion.
It's a tricky situation, isn't it?
I mean, clearly you're in the Trump camp too late, Powell, I think he calls him.
So your proponents of rates being cut because inflation is under control.
But on the other hand, as you quite rightly point out, here we've got.
an unusual situation where the unemployment rate in the United States, I
think, is 4.4%, which is a four-year high.
And we've got growth at 4.4% as well, I think, or 4.3%.
Anyway, they're very close.
But with a president breathing down your neck and all these other things, he
decided just to sit on his hands.
And what really sort of frustrated me last night, before we get off this topic, is
that he didn't give any guidance.
He just said, it's going to be data-driven.
Well, we know that.
So...
It's a bit of an opt out.
So the Fed basically is sort of, you know, operating the way the Fed does.
He's basically ignoring any pressure being put on him by other parties, including the
president.
And, you know, they are basically going by the book, the Fed's book.
Whether the Fed's book is right or wrong is another matter.
But that's what they're doing.
So he's basically sitting on his hands and he's going to sort of ride his period out.
probably you know Unless the evidence on the unemployment front is really negative,
sort of between now and the next review in March, then, you know,
he will basically sort of not change short term rates and leave any decision to his
successor.
The market, of course, knows better than we do.
The US 10 year bond, as we speak, as we pre-record, is 4.271 to be precise.
So it's ticked up.
The yield is ticked up, therefore the bond market coming down.
The US dollar, having been slightly stronger straight after the decision,
has now turned tail and gone weaker again.
The gold and silver prices and other commodities have soared, notably gold,
which is above $5,600 an ounce.
But that's not so much a Fed story or a dollar story.
That's more of a geopolitical story, isn't it?
Well, I think it is a bit of a dollar story as well.
But yes, I mean, gold has done extraordinarily well.
It was up over 60% in dollar terms over calendar 25.
People in the market thought that that was enough and it was going to correct
significantly, and it just didn't.
It kept on going up.
And what that signals really, I think, is that it was, you know,
the move in gold was originally generated after Russia's invasion of Ukraine back in
2022.
And thereafter, central banks, not just the usual suspects in terms of the Russian
Central Bank and the Chinese Central Bank,
have been, you know, avid acquirers of gold.
The investment community has largely ignored that and now finds itself short.
It hasn't really been sort of present at this particular party.
And there's not a lot of gold.
Essentially, if investors more generally decide, you know, that they should have
some gold in their portfolios as a hedge against this
uncertain world we live in currently, then that can overwhelm the supply of gold.
So I think that's what we're seeing.
We're seeing a squeeze.
And that's got considerable momentum now.
We're now seeing basically.
retail appetite emerging in ETFs and so forth.
So the bandwagon goes on.
And of course, silver is a sort of adjunct to all of this.
It's more serious because it basically is an industrial input into things like solar
panels.
And so the silver price has just gone up sort of 50% or so over the last six weeks.
That will have a significant impact in terms of in the real world, unlike gold.
What next, Philip?
The S&P 500 and the NASDAQ, the S&P 500 sort of treading water around that 7,000
mark.
More interested, I think, in big tech earnings.
But what's your guidance for the future?
Never mind the Fed.
What about you and 91?
Well, I think that, you know, we believe we remain in a cyclical bull market for
equities.
And we believe that that is supported by earnings growth.
So we would expect earnings outcomes in, you know.
that are going to be announced or the process of being announced to be pretty
constructive.
And, you know, provided you've got that undertow, then that's actually pretty
supportive for equity markets,
even though bond markets seem to be sort of stuck at this particular level, as you
observed earlier on, just over 4%
of the 10-year US Treasury.
The interesting thing that's happening also is that the market is broadening.
So it's no longer only Magnificent Seven.
You're seeing cyclical stocks performing pretty well.
And you're seeing international stocks performing pretty well.
And so that's a sort of reasonably constructive sign.
And provided it continues to be supported by positive earnings growth and sort of
better economic
numbers on the growth side, and inflation basically showing signs of continuing to
cool,
that's a pretty good combination.
Liquidity is pretty supportive too.
Philip, thank you very much for your analysis.
Philip Saunders is Director at the Investment Institute, 91 in London.
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