Desperate Times Cause Desperate Measures

  • Fed Chair Powell promises bigger, faster rate hikes to combat soaring inflation.
  • The Fed hopes for a ‘soft landing’ but history points to recession.
  • Gold positioned to hedge against inflation and recession.

Powell Threatens Faster and Bigger Rate Hikes

After letting inflation grow at its fastest pace in 40 years, Federal Reserve Chair Powell is desperate. Inflation is now at 7.9%. Powell said the Fed may move much more quickly to get it under control. He is ready to raise rates faster if needed. He’ll also quickly withdraw Fed support from the economy if necessary.

“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Mr. Powell said. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”1

Policymakers already raised interest rates by a quarter point last week. They forecast six more similarly sized increases this year. The goal is to squeeze the economy, slow consumer spending and loosen the labor market. Essentially, they want to slam on the brakes instead of just easing off the gas.

Asked what would keep the Fed from raising interest rates by half a percentage point at its next meeting in May, Mr. Powell replied, “Nothing.” They said they would make a supersized move if they thought one was appropriate. Experts predict the Fed will raise its key interest rate to more than 2 percent by December. 2

He said that the timing of settling into some new normal is ” highly uncertain.” In other words, they don’t how long inflation will last. Powell implied that rates won’t be determined by economic forecasts. Instead, rates will come down when actual prices come down. Until then, they will just keep raising rates.

Inflation - Desperate Times Cause Desperate Measures

Recession Likely

The Fed has put a damper on stock market traders. They are moving away from riskier assets. Raising rates hurts share prices if they tank economic growth or cause the economy to contract.

History is littered with examples of the Fed causing a recession in its attempts to rein in inflation. But Powell is hopeful that there can be a ‘soft landing’. However, the Fed is believed to behind the curve on solving this problem. As a result, the financial community has lost faith in them. They are betting on history over hope. 3

Gold prices held onto gains in the face of the news. Typically, if the Fed raises rates, gold prices go down. The idea being is if inflation is going down, people won’t seek a hedge against it. But global conflict, slowing growth, and rising oil prices are keeping the threat of inflation very real.

One of the best investments if the Fed does cause a recession – Gold. Gold is a safe haven in both inflation and recession.

The most recent recession occurred between 2007 and 2009. It was a brutal and long economic downturn driven by the housing crisis. The S&P 500 Index dropped 37% during that time. But what happened to gold? The price rose 24%!

The World Gold Council tracked the correlation between gold and the S&P 500 Index between 1987 and 2010. They found that in a recession, when stock prices are likely plummeting, you can expect gold to be moving the other way. 4

If you are interested in protecting your retirement fund from today’s inflation and tomorrow’s recession, you should contact America Hartford Gold about opening a Gold IRA today.

1. https://www.nytimes.com/2022/03/21/business/economy/powell-fed-inflation.html
2. https://www.nytimes.com/2022/03/21/business/economy/powell-fed-inflation.html
3. https://www.axios.com/fed-chief-powell-supply-0222dcd7-224b-46e8-9ff9-2a523d7ad605.html
4. https://www.fool.com/investing/2017/07/01/why-investors-buy-gold-in-a-recession.aspx
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