The Fed is expected to remain data-dependent as weak labour market data and sticky inflation make the policy outlook uncertain.
Seth expects US Treasury yields to remain sticky, with the 10-year yield likely to stay in the 4.40–4.80% range over the longer term. He does not see runaway yields, but believes high inflation, fiscal financing needs and borrowing by hyperscalers will keep pressure on the long end.
He also remains structurally positive on gold as a weaker dollar could make the precious metal a key beneficiary over the coming quarters and years.
This is an edited transcript of the interview.
Q: All eyes are on Jackson Hole, the first one for the new Fed chief, Kevin Warsh. So far, he’s followed this policy of less is more in terms of communication. Realistically, what should we expect?
A: Not a lot. I think more of the less. So, I think we will continue to see less forward communication coming from the Fed chair, and I do think to some extent that makes sense. He might look at some big-picture focus in terms of the overall policy, but I don’t really expect a lot in terms of forward guidance here. So, there will be some disappointment for the markets expecting to get more clarity on the policy path from here.
Q: So, it’s going to be a bit of a non-event to your mind? And what about the overall call on yields now? Yields have been stubbornly high, and even if we’ve seen some measures from Scott Bessent (United States Secretary of the Treasury) in terms of buying back of bonds, they’re pretty much addressing the symptoms and not the underlying problem, which is high inflation, oil prices, etc., and the $40 trillion of debt on the books. Do we expect yields to remain high, and what impact could that have on equities over a medium to longer period of time?
A: First of all, the yields are high because of a combination of factors. Obviously, inflation is one, but you also have a high fiscal financing requirement, and you have a very high funding requirement from the hyperscalers, which now has started to compete in the long end with Treasury issuance.
So, the implication, in my mind, is that I still think the yields are going to remain somewhat sticky. Although I don’t really see a scenario of runaway yields, like they’re really getting out of control in the case of the US here. The signal from the Treasury, from Scott Bessent’s messaging, although they haven’t done really anything, they just announced increased buying of the long end, is just a signal to say that there is some level of discomfort with the long end going higher.
But I don’t think it’s easy to just push it lower from here by two or four billion of buying.
Q: Precious metals is the other area where there has been a bit of interest. Are the weaker hands all out, you think, in gold and silver, and is the shakeout complete?
A: I do think a lot of the deleveraging from the standpoint of what leverage had built up in the system in both gold and silver has been cleaned up.
Structurally, I remain positive on gold, although it has run up a lot in the last one month post the Japanese yen intervention, and then the Treasury market announcement from the US Treasury. With the whole idea of the dollar debasement trade coming back into people’s mind, I don’t think gold can continue on this path again because there will be a lot of caution around the leverage that was building up beginning of the year.
But structurally, we are back into the positive territory for gold. And as the dollar sees more weakness in the coming quarters and years, gold is the single biggest beneficiary of that.
Q: It’s been that kind of a market, right? Gold bulls are active, bond bulls are active, and even crypto is doing very well. But what’s the call? What do you think the Fed is going to do in the upcoming meetings, or even in the next 6 months, 12 months?
A: I very much stay in the camp that the Fed in the upcoming meeting is not going to hike. The Fed is going to stay put. The potential for a hike is still maybe later in the year, in the November or December meeting.
But before that, till the task force committees come back with a report, there’s basically more review. I can’t see a strong reason, and the data has been mixed. It has not been one-sided strong. The labour market data is weak; the inflation data is sticky.
So, very simple call: I think next three months, the Fed is on a hike, very data-dependent, with a risk of potentially a shallow hiking cycle towards the end of the year.
Watch the full conversation here
Q: So, one year down the line, the 10-year yield in the US and the 30-year yield, where do you think are the broad ranges?
A: I still think we’re stuck in a range here. If you take a longer-term view and the Fed has maybe one hike or potentially two, I think the 10-year Treasury still can sit in 4.40–4.50% to 4.75–4.80% as a range. I don’t think it is breaking out.
The 30-year is harder to predict, to be honest, because it will depend a lot on the issuance patterns in terms of how much the US Treasury wants to borrow in the long end, and they have been, if anything, going back into the front.
So, they can keep in the high 4s to low 5s as a range, despite potential hikes from the Fed.
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