Fed Set for Historic Rate Hikes
News of the war in Ukraine is dominating the headlines. The economic impact of the war can’t be understated. But another major event is happening that will hit your bottom line. The Federal Reserve is meeting this week to raise interest rates for the first time since 2018. Prior to now, rates have been hovering around zero.
Fed President Jerome Powell has warned that record rate increases could be coming. The first quarter-point increase will likely lay the groundwork for additional hikes to follow. They are also going to reduce the money supply and unwind their own holdings. 1
“The cumulative effect of rate hikes is what is really going to have an impact on the economy and household budgets,” said Greg McBride, Bankrate.com’s chief financial analyst.
The Fed is hoping to tame raging inflation. It just hit a record high of 7.9%. This is after years of no inflation.
The Fed was confident that the economy could handle raising interest rates. They believed that would stop inflation without hurting the economy. Then the war happened. Now they aren’t so sure.
Effects of the War
War news is pushing the Fed meeting out of the headlines. Even with Powell’s warning, no one knows how the market will react to rate hikes. Investors have grown accustomed to a stock market propped up with easy money from the central bank.
Right now, investors are focused on the effects of the war. Effects like greater market volatility, increased energy prices and worsening supply chain issues. NASDAQ and the Dow Jones keep posting staggering losses. All of these are combining to push inflation higher. They are also dragging down the economy.
The conflict has pushed the commodity markets into overdrive. Which means, it’s pretty much a mathematical certainty that inflation rates will be higher in the months ahead. The possibility of double-digit inflation has become very real. A recession may be required to break the inflated economy. 2
Investors are dashing for safe haven investments. The demand for commodities is setting new records. Oil rocketed to over $130 a barrel. That’s the highest since 2008.
Gold continues to hover in record territory. The soaring demand comes after an already strong year for physical metal buying. Demand for bars and coins hit 1,124 tons in 2021, according to the World Gold Council. The highest in almost a decade. 3
The ever-increasing demand for gold will continue to drive prices higher. If you are looking to protect your assets, the best time to get into a Gold IRA is right now. Call American Hartford Gold at 800-462-0071 to learn how Americans are using tangible assets like gold to protect their wealth and retirement.
Notes:
1. https://www.cnbc.com/2022/03/14/heres-what-the-feds-expected-rate-hike-means-for-your-wallet.html
2. https://www.axios.com/inflation-russia-ukraine-commodities-fed-f03f0d10-5665-4116-9ffe-6dcf00beff3d.html
3. https://www.bloomberg.com/news/articles/2022-03-13/gold-dealers-swamped-by-demand-as-war-creates-inflation-scare
