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The Asset Class: Philip Saunders · Strictly Business

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