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
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
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Claims It CAN Resume Rate Hikes While Doubts Grow

Interest-Rates / US Interest Rates Jun 18, 2023 - 08:58 PM GMT

By: MoneyMetals

Interest-Rates As the Federal Reserve begins to back off on tightening, the U.S. dollar is becoming increasingly vulnerable to selling.

The Fed left its benchmark interest rate unchanged at just above 5% at this week's policy meeting. It was the first time in over a year that central bankers decided not to hike.

In his remarks, Fed chairman Jerome Powell tried to maintain a hawkish tone despite the dovish policy move. He vowed to deliver more rate hikes later this year.



Jerome Powell: We have raised our policy interest rate by five percentage points and we've continued to reduce our securities holdings at a brisk pace. We've covered a lot of ground and the full effects of our tightening have yet to be felt. In light of how far we've come in tightening policy, the uncertain lags with which monetary policy affects the economy and potential headwinds from credit tightening, today we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time.

Powell's telegraphing of additional hikes still ahead seems to be at odds with his own rationale for pausing this month. As he noted, the full effects of higher interest rates have yet to work their way through the economy -- particularly in sectors such as real estate which are sensitive to changes in borrowing costs.

If he wants to wait and see how the economy absorbs recent rate hikes before determining the next appropriate monetary response… then why declare in advance that more hikes are coming?

And if he's so confident that the economy can withstand higher rates, then why pause now… given that the Fed's battle to bring inflation down is still ongoing?

Central bankers would have us believe that they can predict the consequences of their actions months down the road. They would have us believe that they can fine tune the economy to achieve the right balance between bringing down inflation and avoiding recession.

But not everybody is a believer.

Currency traders evidently aren't buying the idea that the Fed will be able to resume rate hikes. After all, the same Fed that said inflation was transitory back in 2021. And the Fed also said contagion in subprime mortgages was contained before the collapse of 2008. The credibility of our central banking overlords is shot.

So traders went ahead and sold U.S. dollars on the foreign exchange markets this week. The Dollar Index dipped 1.8% for the week through Thursday's close. That puts it on track for its biggest weekly decline of the year.

Unfortunately for gold and silver bugs, the response in metals markets has been somewhat muted.

Metals markets were overshadowed once again by a surging stock market. The S&P 500 rallied to its highest level since April 2022. Amid the swelling bullish sentiment, momentum traders are piling into equities as an alternative to the dollar.

Stocks may have more upside potential than Federal Reserve notes, but they also carry downside risk. Higher interest rates mean investors may begin demanding higher dividend yields on stocks. And that may entail a repricing of share prices lower.


The earnings of large corporations are also at risk of taking a hit as the economy weakens. The Fed's only real strategy for getting inflation down is to reduce the capacity of consumers to spend. If that means crashing the housing market and putting millions of people out of work, then so be it.

The Fed admits that its recent policy actions will produce an uptick in unemployment in the months ahead. Jay Powell and company say publicly that they think the economy can avoid going into recession. But if they really had the ability to engineer a sustainable goldilocks scenario of low inflation and modest economic growth, then they wouldn't currently be in the position of fighting persistently high inflation.

They had said inflation would be transitory. Now they say the economy and the banking system and the dollar are all fundamentally sound.

In fact, the fundamentals for the U.S. currency are steadily deteriorating. The world is moving toward alternatives, including gold. And that move threatens the dollar's status as world reserve currency.

Treasury Secretary Janet Yellen admitted as much in comments before Congress this week. She noted that de-dollarization is taking place as foreign central banks and governments diversify their reserves and seek alternatives in international transactions.

Federal Reserve note’s share of global reserves declined by 8% last year. And that trend doesn't appear to be slowing down this year. In addition to Russia urging its trading partners to ditch the dollar, China is pressuring suppliers of oil and other vital exports to accept yuan for payments.

Even longstanding U.S. ally Saudi Arabia is reportedly considering pricing its oil in other currencies. That would effectively mean the end of the petro-dollar.

It's unlikely the Chinese yuan would assume the role of world's reserve currency. There are plenty of reasons why competing countries would mistrust it and the government that backs it.

But there are no trust issues with gold. It is universally recognized as the ultimate money. In a time of rising geopolitical tensions and a declining U.S. dollar, gold stands to become more important within the international monetary order -- and more valuable on the open market.

By Mike Gleason

MoneyMetals.com

Mike 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.

© 2023 Mike 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