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The possibility of the Federal Reserve rate rises continues to frighten Wall Street and cast a pall over the precious metals market.
The Fed firmly hinted on Wednesday that it will raise its benchmark Fed funds rate for the first time in three years, most likely at its March policy meeting.
Policymakers stated that inflation is a “far over” goal and that a “strong labour market” justified some monetary tightening.
“There’s a lot of space to raise interest rates without endangering the job market,” Fed Chairman Jerome Powell said, adding that “wages are rising at the fastest rate in decades.”
When fact-checked, it turns out to be mainly untrue.
Overall, price inflation is at its fastest rate in decades. Wages, like everything else in the economy that is vulnerable to inflationary pressures, have undoubtedly been growing in nominal terms.
Wages, on the other hand, are falling behind in real terms. The Labor Department announced earlier this month that when adjusted for buying power, average hourly wages for all employees fell 2.4% year on year through December.
In other words, salaries aren’t keeping up with inflation, even when measured by the government’s manipulated Consumer Price Index, which is now rising at a 7% rate.
Officials in Washington who say the economy is improving just do not understand (or, in many cases, are deliberately misleading).
Ordinary Americans, on the other hand, get it. They are well aware that they are losing ground to inflation.
According to an NBC News study, 61% of Americans believe their family income is slipping behind their living expenses. Only 7% believe their salary is growing faster than inflation.
Furthermore, 72% of Americans believe the country is heading on the wrong path. That is one of the most pessimistic social mood assessments ever recorded in the history of polling.
The tiny number of prosperous elites is becoming restless as a result of the recent dramatic drop in stock prices.
Some investors believed that the recent stock market sell-off would compel the Fed to adopt a more dovish stance.
In recent years, Wall Street outbursts have prompted the Fed to ease up on tightening and unleash additional stimulus.
However, the present spread between inflation and the Fed funds rate is the widest on record. Central bankers would lose whatever “inflation-fighting” credibility they still had if they did not begin raising interest rates this year.
However, a single rate rise – or even multiple rate hikes – would not represent a fundamental shift away from the Fed’s current lax monetary policy. To be “tight” in any meaningful sense, officials would have to be prepared to raise nominal rates above and above the inflation rate (7% or higher).
In recent years, Wall Street outbursts have prompted the central bank to ease up on tightening and unleash additional stimulus.
However, the present difference between inflation and the Fed funds rate is the widest on record. Central bankers would lose whatever “inflation-fighting” credibility they still had if they did not begin raising interest rates this year.
However, a single rate rise — or even multiple rate hikes – would not represent a fundamental shift away from loose monetary policy. To be “tight” in any meaningful sense, officials would have to be prepared to raise nominal rates above and above the inflation rate (7 percent+).
For a long time, the stock market has been the principal beneficiary of the Fed’s excessive monetary creation. However, there are rising indications that this year will be a watershed moment.
The high-flying innovation-themed equities were the first to fall into bear markets.
The small-cap Russell 2000 stocks then lost all of their gains from the previous year.
When assessed against genuine assets like as gold, the S&P 500 and Dow Jones Industrials might go from correction to collapse.
Despite the fact that gold and silver have yet to show large gains in this climate, they have outperformed the stock market so far this year.
Against the backdrop of rising inflation and a fundamentally unfavourable social attitude, this embryonic tendency may have legs. When combined with consistently low real interest rates, it’s a near-ideal setting for a huge precious metals bull market to unfold.
Although there may be possible barriers ahead for gold and silver investors, the Federal Reserve is unlikely to be one of them very soon. The early phases of a Fed-hiking campaign have historically been good for precious metals price gains.
The main message is that investors who have a strong holding in hard assets should not be concerned about the Fed. Those who rely only on dollar-denominated financial assets, on the other hand, should be extremely concerned.