Navigating recent market volatility: A new U.S. Fed chair and wild swings in gold and silver

Hi, welcome to On the Investors Minds, I'm Tai Huai, the Chief Market Strategist for Asia-Pacific at JPMorganism Management, and thank you for giving us a few minutes for your time to understand what investors are thinking about right now and how that fits in with building the right portfolio. So in this episode, I want to walk through two very hot topics, the Fed share nominee Kevin Walsh and also the authorities we've seen in precious metals such as gold and silver. So let's start with the Fed share. On the 30th January President Trump named Kevin Walsh as his nominee for the Federal Reserve Chair, Walsh is known for a hawkish tilt from his time as a Fed Governor between 2006 and 2011. After leaving the central bank, he has criticized the Fed for strength beyond his mandate, including enabling fiscal accesses via QE, more recently although he's been arguing the Fed should cut rates more aggressively. For now, the growth, inflation and the quality outlook for the U.S. economy does not really provide much support for substantial easing. Also institutionally, the Fed share must build consensus. So multiple near-term cuts will require the Fed share, Kevin Walsh in this case, to persuade a majority of FOMC members to agree with him and this could be quite challenging given where we are in the economic cycle. So let's quickly run through the macro checklist. On growth, real GDP ran hot, 3.8% annualised in Q2 of last year and 4.4% in Q3. We are going to get the Q4 number soon, but initial indications suggest that it's going to be a strong number. Function, which is roughly 68% GDP, grew at about 3% in Q4. Now even with some calling, growth could re-excelerate in the first half of 2026, as income tax rebates and potential tariff rebate checks can boost household cash flows. Also the wealth affects from a more than 3-year equity bull market and also the ongoing AI-related care packs are additional support for economic growth. When it comes to the job market, net job creation has averaged just 15,000 jobs per month since last June, and this could be revised lower. But weak hiring does not necessarily mean a weak economy if labour supplies also shrinking, which means companies may want to hire, but they're not really able to find people to fill those jobs. Weekly jobless claims have trended lower, unemployment rate has been holding at 4.4% in December, and also new population projections imply that working age population may be declining modestly. That is a structural shift that much policy cannot easily fix. On inflation, the FETS estimates for December's core personal consumption expenditure is 3% year over year. The highest since last February, and this could drift high towards 3.5% by mid-year, if the refund driven demand allow retailers to pass through more than tariff costs. Now inflation may fade in a second half of 2026. Today's mix of unemployment rate near the FETS 4.2% goal, and inflation well above 2% does not really ask for aggressive easing. So on balance, even with the pending leaves from change at the FET, the landscape argues for a more neutral FETS stance in the near term, and also with a higher bar for multiple cuts, barring a meaningful growth slowdown, or a faster than expected slowdown in inflation. Now we do think the FETS share nominee will base his decision on incoming data. His core for lower rates is partly built on productivity growth, driven by the development of artificial intelligence, which isn't something that we can easily observe in the near term. Hence, we see the futures market now currently pricing in only two cuts before the end of the year to be quite reasonable. Now let's move on to precious metals where fundamentals and positioning have led to quite significant volatility. Gold and silver went through some wild swings in the past week. After hitting the high of $5,585 for Gold which is obviously a record high, it fell over $1,000 in three days, and now just back above $5,000 mark. Now this bout of volatility reiterated a few key points we've been making for the past couple of years. On the positive side, Gold remains well supported by investors demand. Gold banks continues to be a key pillar of support as they continue to diversify the foreign exchange allocation. And investors are following not only central banks, but also their concerns over the risk of poor fiscal discipline leading to excessive issuance of debt and also money. With limited room for growth in production for Gold, silver and copper, these metals are seen as better ways to retain value and fight financial repression. However, Gold is also inherently volatile with no income generated. This volatility could be exacerbated by an increase in retail participation as well. Hence investors will need to be disciplined in sizing their allocation appropriately. Why we discussed the fact and metals together? So why do we put the fed chain nomination and the metals market together? Because liquidity, real economy and concerns over fiscal disciplines, all of these are impacting on the metal market. Gold is seen as a hedge against the risk of the fed losing its independence as well, although we think that's actually less likely now given the composition of FOMC members. And also for a Fed that stays closer to neutral, well growth remains decent, can keep real use range bound and this could temper its Gold's appeal in the near term to some extent. But in the longer run, we still see the benefits of having Gold and Copper in portfolio as a way to diversify. So thanks for listening, if you enjoyed this podcast, please share this with your friends and colleagues. And of course, consider subscribing. If you have topics that you want us to cover in the future, please return to your JP Morgan asset management cloud advisors. I'm Taihei and I'll see you in our next episode to discuss what sort of investor's minds. And meanwhile, stay informed and stay invested. This content is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction nor is it a commitment from JP Morgan asset management or any of its subsidiaries to participate in any of the transactions mentioned herein. 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