Oct 27, 2026 · 45 min
Merk sees the Fed tightening without raising rates
#425 Axel Merk: I Sat Down With Kevin Warsh — What the Fed Is Really Up To and Where Gold Goes Next
The episode examines how policy language, fiscal pressure, geopolitical conflict, and gold demand could reshape markets before the next rate move.
- 1Kevin Warsh could reduce monetary accommodation and forward guidance without delivering an immediate rate hike.
- 2Gold’s role depends on portfolio purpose, dollar-purchasing-power concerns, central-bank demand, and investor diversification—not price momentum alone.
- 3Fiscal pressures, institutional constraints, AI-related debt, and rising volatility may increasingly displace the Fed as markets’ central focus.
Don't miss
Merk explains how the Fed could maintain a tightening bias through language and guidance even while an immediate rate hike remains highly unlikely.
The brief
Axel Merk previews the FOMC meeting by distinguishing an immediate rate hike from a tightening bias expressed through policy language and future guidance.
The conversation treats gold less as a momentum trade than as a portfolio tool shaped by central-bank demand, diversification, and concerns about dollar purchasing power.
Merk’s meetings with Kevin Warsh anchor a discussion of foundational monetary-policy questions and why reducing accommodation can matter before rates move.
Fiscal pressures, geopolitical conflict, post-crisis interventions, and institutional inertia complicate efforts to reform the Federal Reserve and help explain rising populist sentiment.
The standout tension is practical: investors must weigh precious metals and miners against greater volatility while sizing exposure according to their ability to tolerate risk.
What was said on this episode
46 statements · 23 positive · 17 negative · 3 mixed · 3 neutral
Kevin Warsh received the Fed role because he believes AI will drive productivity growth.
“Walsh got the job because he believes in an AI-driven productivity boom.”
Listen at 0:55
Kevin Warsh is fundamentally hawkish on monetary policy.
“But at its core, Walsh is a hawk, has always been.”
Listen at 1:15
Kevin Warsh is the right person to reform the Federal Reserve.
“he wants to change everything. And I happen to agree that a lot of change is necessary. I happen to think he is the right man for the job.”
Listen at 3:17
Kevin Warsh prefers reducing inflation without aggressive monetary tightening.
“he does not want to use a sledgehammer to get inflation down.”
Listen at 4:01
Gold and bond-market decoupling from Iran-related shocks would benefit markets.
“when that happens, even when it's on days where the markets are down, I think that's a positive.”
Listen at 6:11
Iran-related supply shocks raised real rates and pressured gold prices.
“the price of gold came down. Well, the reason why the price of gold came down is because of supply shock in itself is a negative in the sense that real interest rates went higher.”
Listen at 8:47
The Iran war will eventually reach a resolution.
“at some point there will be a resolution.”
Listen at 10:59
Markets will adapt to the Iran conflict and find a way forward.
“the market has a very interesting way of adapting. And so we will figure out a way forward.”
Listen at 11:43
Markets will shift attention away from the Iran war over the medium term.
“in the medium term, we will focus on other things”
Listen at 11:53
Dollar diversification by hostile central banks has benefited gold.
“on the margin, gold has been a beneficiary.”
Listen at 13:04
Diversification investors are increasingly adopting precious metals.
“They have increasingly been embracing precious metals.”
Listen at 13:15
U.S. fiscal deficits lack a credible path toward substantial reduction and sustainability.
“there's no path in sight that shows that our deficits will come down in earnest and will become sustainable”
Listen at 13:31
Precious-metals speculators are currently uncertain and sidelined.
“the speculator doesn't quite know what to do”
Listen at 14:18
Active short sellers are likely to increase market volatility.
“we're setting ourselves up for more volatility because they can create some violent moves.”
Listen at 14:40
Monetary policy should set credit conditions, not allocate credit among economic sectors.
“monetary policy is about the amount of credit in the economy. It's about interest rates. It is not about... allocating that credit to a specific sector of the economy. That is fiscal policy.”
Listen at 18:35
Federal Reserve mortgage-backed-security purchases allocate credit toward housing.
“the Federal Reserve to buy mortgage-backed securities. When you buy mortgage-backed securities, you are allocating credit to the mortgage sector.”
Listen at 19:05
Persistently elevated inflation will become incorporated into market pricing.
“if you allow inflation to be elevated for an extended period of time, the market will price that in.”
Listen at 22:28
The Federal Reserve will not be abolished in the short term.
“First of all, it's not going to happen in the short term.”
Listen at 24:19
Good monetary policy cannot repair the effects of bad fiscal policy.
“bad fiscal policy, if you have that as a context, good monetary policy can't fix that.”
Listen at 25:15
Kevin Warsh has an opportunity to eliminate many Federal Reserve bad habits.
“I do think Walsh has an amazing opportunity to get rid of many of the bad habits at the Fed.”
Listen at 26:13
Reducing Fed micromanagement would halt its increasing economic intervention.
“we are stopping the slippery slope that the Federal Reserve has been on, getting ever more engaged in micromanaging the economy.”
Listen at 26:24
Markets will experience increased volatility.
“I do expect there to be more volatility.”
Listen at 30:37
The bond market will eventually pressure fiscal authorities to improve policy.
“I do expect there to be at some point a bond market that will tell the fiscal side that to get its act together.”
Listen at 30:40
The Federal Reserve should consider returning to the pre-2008 reserve system.
“I happen to believe we need to go back. to discuss reserve system that existed before 2008.”
Listen at 32:40
Kevin Warsh faces major institutional resistance to Federal Reserve reform.
“he has a cat-herding exercise that's incredibly challenging.”
Listen at 34:24
The probability of an October Federal Reserve rate hike was very low.
“the odds of an October rate hike were always very, very slim.”
Listen at 37:19
Sleeplessness from volatility indicates excessive portfolio exposure.
“if you can't sleep at night because you have too much exposure to something and you're concerned about the volatility, well, that means you have too much exposure.”
Listen at 38:12
Excessive anxiety about precious-metals exposure indicates an investor holds too much.
“if you lose sleep over it, and since we talk about precious metals here, precious metals have a tendency”
Listen at 38:26
Gold volatility is usually equity-like but periodically surges.
“precious metals have a tendency, if you take the price of gold, the volatility of a... about that of the equity markets, but then it has these periods where the volatility surges.”
Listen at 38:30
Precious-metals volatility can surge at any time.
“volatility can always surge.”
Listen at 38:55
Many portfolios are heavily concentrated in technology and AI.
“we are very, very tech-heavy with the AI trade dominating many, many portfolios.”
Listen at 38:59
A correction in AI-related markets would spill over into broader markets.
“If or when there is going to be a rude awakening in that sector, it's going to have spillover effects”
Listen at 39:13
AI-related markets may rise further before any correction.
“there's a good chance that we might have another leg up.”
Listen at 39:50
Market direction is currently highly uncertain.
“If you're not confused, you're not paying attention. This could go any which way.”
Listen at 39:56
Cash currently yields approximately 4%.
“If you're holding cash, you're getting 4%. That's not bad”
Listen at 40:02
Investors should align portfolios with their risk tolerance.
“people need to think about what they're comfortable with.”
Listen at 40:19
Gold-mining equities are among the cheapest investment opportunities.
“I happen to believe that... that the miners are some of the cheapest ones.”
Listen at 41:11
AI investment requires substantial capital and has uncertain margins.
“AI investment, huge capital investment and uncertain margins.”
Listen at 41:49
AI’s capital intensity is leveling competition with industrial and mining investments.
“The beauty about this is it's leveling the playing field to industrial investment, including mining and precious metals mining”
Listen at 41:53
Precious-metals mining currently offers high profit margins.
“you also have very high profit margins in the current pricing environment for precious metals.”
Listen at 42:06
Current markets offer many investment opportunities.
“there are lots of opportunities out there these days”
Listen at 42:20
Investors should allocate to precious-metals mining equities.
“to me, that's yet another reason that to be allocated to the miners as well”
Listen at 42:28
An AI bust would lower interest rates and benefit mining equities.
“If or when we have a bust in AI, because it is so heavily influenced by debt or much of it is debt-driven, I would think that would warrant a lower interest rate environment. And then you'll have the more classic dynamics work out and have the miners do quite well.”
Listen at 42:39
An AI bust would prompt lower rates and strong miner performance.
“I would think that would warrant a lower interest rate environment. And then you'll have the more classic dynamics work out and have the miners do quite well.”
Listen at 42:48
The current fiscal situation is very serious.
“the fiscal situation is quite dire in my view.”
Listen at 43:00
Investing in personal health is the best investment available.
“the best investment you can make is in your own health”
Listen at 43:15
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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