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Watch out for one more rate hike, recession 'freight train' hurtling towards us - Adrian Day

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(Kitco News) - After the Federal Reserve held rates steady for the second meeting in a row, markets are rather confident that the U.S. central bank is done with its tightening cycle. However, Adrian Day, Chairman & CEO of Adrian Day Asset Management, says there is still more than a 50% chance of another rate hike.

Despite a looming recession, the Fed might not be done, warned Day on the sidelines of the New Orleans Investment Conference.

"At the Fed's latest meeting, 12 of the 19 FOMC members still called for another rate hike this year," Day told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. "The odds are better than 50% that we'll have a rate hike in December. But an awful lot depends on what happens between now and then."

This is in contrast to what the market is pricing in at the moment, with the CME FedWatch tool indicating a 90% chance of a rate hold at the December meeting.

According to Day, however, the real message to look out for is how long the Fed keeps rates elevated, which is another form of tightening. To get his outlook on the Fed's next steps, watch the video above.

Recession is coming

Recession is "a freight train heading towards us," Day pointed out. A major economic slowdown is inevitable due to the lagging effects of monetary policy tightening.

The stock market is looking at potential losses between 10-20% by the middle of next year as recession takes hold of the U.S. economy, Day said.

The solid economic numbers that have recently come out, including the U.S. GDP growing at a 4.9% annualized pace in the third quarter, are temporary. The fourth quarter GDP will likely be dramatically lower, Day stated.

"I expect Q4 GDP to be dramatically lower but not negative. Next quarter could be negative. Two or three quarters from now, it'll be negative," he said.

Treasury's Biggest Blunder? Treasury Secretaries Should Face Criminal Negligence Charges

The lag effects of monetary policy tightening have postponed a recession, but it will filter through the economy next year.

"During that long period from 2008, everyone had the opportunity to refinance their debt. Households did it with mortgages, and corporations did it by terming their debt and refinancing at lower levels," Day said. "Everybody in the United States did it, except the U.S. government."

In a recent fireside chat with Paul Tudor Jones, Stanley Druckenmiller, the head of Duquesne Family Office, criticized U.S. Treasury Secretary Janet Yellen for making the worst mistake in Treasury history by not taking advantage of historically low interest rates to issue more long-term government debt.

"When rates were practically zero, every Tom, Dick, Harry, and Mary in the United States refinanced their mortgage," Druckenmiller said. "Unfortunately, we had one entity that did not, and that was the U.S. Treasury."

Day agreed with Druckenmiller, adding that Treasury Secretaries in charge of the treasury issuance "should be tried for criminal negligence."

Day gave examples of what Austria and other countries did that the U.S. missed out on. Watch the video above for details.

These assets are undervalued and thrive during downturns

Day recommended additional exposure to gold, silver, and mining stocks during a recession.

"Gold stocks are very undervalued. We're approaching a time when we'll start seeing gold stocks attract buyers," Day said.

Watch the video above to get Day's top investment picks and his updated gold price forecast.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.