I’ve been predicting that the markets would throw a hissy fit like this as the Fed attempted to tighten monetary policy. An important part of that prediction is that Powell & Co. will at some point listen to its marching orders.
They simply can’t afford to allow the house of cards to collapse.
The question is, when will they blink?
I don’t think they can afford to just yet. Remember, they haven’t even begun to tighten! All they’ve done is talk. If they reverse course now, they’re simply throwing the last shred of their credibility out the window.
But they can ease their rhetoric a bit — which I expect them to do in this week’s Fed meeting that concludes on Wednesday. And while gold has done well in this decline, some less-hawkish talk this week should also benefit the metal on the upside.
Looking further down the road, we know that the Fed won’t be able to get too far in its normalization plans. Even if it can withstand the turmoil in the financial markets, the cost of servicing the Federal debt at higher rates will present an insurmountable roadblock.
So what to do now?
That depends upon your personal situation, so don’t take anything I say as investment advice. But generally speaking, I feel the Fed will have to assuage the markets, and we’ll see a big rebound when that happens.
In short, I’m not selling anything into this downdraft.
Market turmoil – here’s my take….png)
