Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’

Interest-Rates / US Interest Rates Aug 03, 2022 - 08:27 AM GMT

By: MoneyMetals

Interest-Rates

With last week’s second 75 basis-point rate hike, the Federal Reserve now claims it has achieved a “neutral” monetary policy stance. That would mean, in theory, that interest rates are neither stimulating nor restraining the economy.

"Now that we're at neutral, as the process goes on, at some point, it will be appropriate to slow down,” Fed Chairman Jerome Powell said.

Powell was effectively telling markets he intends to pivot away from inflation fighting.

Yet inflation, even when measured by the Fed's own preferred gauge, continues to run hot.



The Personal Consumption Expenditures price index came in at 6.8% in Friday’s report from the Bureau of Economic Analysis.

A Fed funds rate that currently stands at just 2.5% doesn’t look “neutral” at all when the official inflation rate is running at 6.8%.

Former Treasury Secretary Larry Summers accused Federal Reserve officials of engaging in “wishful thinking” when it comes inflation.

“Jay Powell said things that, to be blunt, were analytically indefensible,” Summers told Bloomberg. “There is no conceivable way that a 2.5% interest rate, in an economy inflating like this, is anywhere near neutral.”

Left unsaid by Summers and Powell is that the slowing economy and highly leveraged financial markets cannot take much more rate hiking without collapsing. That’s why the Fed is signaling it will wind down its tightening campaign – before achieving any kind of victory over inflation.

In the face of four-decade highs in inflation, monetary policy has gone from ultra-accommodative to slightly less accommodative.

It likely will never get to a truly neutral level – at least not for any prolonged period.

The financial system and the U.S. government itself (the world’s biggest debtor) need interest rates to continue to be suppressed. Negative real rates enable borrowers to be bailed out over time by rising inflation and rising nominal asset values.

Over time, negative real rates also put upward pressure on precious metals markets.

Gold and silver prices lost ground when the Fed started talking tough on inflation. But they rebounded last week when central bankers dialed down expectations for future monetary tightening.

The Fed is anything but neutral when it comes to crafting monetary policy. Central bankers inevitably pick winners and losers when they manipulate interest rates and pump liquidity into the financial system.

The winners of Fed policies are typically Wall Street investment bankers and Washington, D.C. politicians. And so are the holders of tangible assets financed with debt.

The losers are: 1) savers and pensioners on a fixed income who don’t receive earnings that keep pace with inflation; and 2) workers whose wages never get them ahead of rising costs of living.

It is possible, however, for individual investors to position themselves on the winning side of Fed policy decisions.

During some economic cycles, it pays to be in stocks. During others, it’s far more profitable to be in assets that benefit from the unintended consequences of the Fed’s inflationary policies.

As the U.S. economy heads into recession, conventional stocks are vulnerable. Meanwhile, demand for safe-haven alternative assets combined with ongoing inflation pressures could provide a big boost to undervalued gold and silver markets.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2022 Stefan Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in