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The Fed to pause hiking in February, ‘sharp' rallies expected - Bill Baruch

Kitco News

Given recent data suggesting that the economy is in “deterioration” and inflation has “come down,” the Federal Reserve is likely to pause its tightening cycle in February, according to Bill Baruch, President of Blue Line Futures. In particular, he cited manufacturing data, which show that prices paid for inputs dropped to their lowest level “since the start of the pandemic.”

“I think there is a good chance that we don’t see the Fed hike at all in February,” he predicted. “We could see something from them that would surprise the markets, come the first week of February.”

He added that although 2023 will be characterized by “volatile” trends, markets would rally.

“It’s going to be a very choppy market, a very volatile market,” he said. “[But] the market could really rally very sharply to start the year.”

Baruch spoke with David Lin, Anchor and Producer at Kitco News.

Fed Rate Hikes and Markets

The Federal Reserve has hiked interest rates by 425 basis points over the year in an effort to reduce inflation, which peaked at 9.1 percent in June. Many analysts have blamed the Fed’s aggressive tightening cycle on selloffs in stocks and cryptocurrencies in 2022.

“These hikes were aggressive,” observed Baruch. “There were signs in 2021 that the economy was ready to slow, so there were a lot of factors here, but with the Fed hiking those rates right through, that’s what slam dunked this market down.”

On Wednesday, Federal Reserve Open Market Committee (FOMC) meeting minutes were released, suggesting the Fed remains committed to bringing inflation down to 2 percent. The S&P 500 fell by 2 percent following the release of meeting minutes.

However, Baruch said that markets would be in for a risk-on “surprise.”

“If they don’t hike or seem less hawkish [in 2023], that could be a big lead into a risk-on rally,” he said. Risk-on assets include tech stocks, cryptocurrencies, and other ‘risky’ investments that are expected to rise in favorable economic conditions, due to investors’ appetite for more risk.

Baruch added, with a note of cautiousness, “you’ve got to trade the market you have, and not the one you want.”

To find out which assets Baruch is investing in, watch the video above

Follow David Lin on Twitter: @davidlin_TV

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