Fed fails to act at today’s meeting, Gold up 23% in 6 months

Still-Rising Inflation Forced Fed to Keep Interest Rates at 23-Year High

The Federal Reserve failed to surprise anyone as it left interest rates unchanged at the end of its Wednesday meeting. Recent economic data has revealed inflation higher-than-expected for the past three months. What’s more, inflation levels are once again rising—not falling.

The Fed’s long battle with inflation is far from over, and the road to get to a 2% inflation level could be a bumpy ride ahead. At it’s last meeting, the Fed hinted at plans to cut interest rates three times in 2024. Notably, the Fed’s post-meeting statement today failed to deliver any signs that it plans to lower interest rates anytime soon.

Wednesday’s inaction by the Fed leaves the benchmark rate at 5.25% to 5.5% for the sixth meeting in a row.

The Fed acknowledged that: “Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”

The Fed added that: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Market Reaction Muted

Financial markets didn’t show a strong reaction to the news, which was widely expected by most on Wall Street. Stocks were little changed from pre-announcement levels. The U.S. dollar index revealed the strongest reaction to the Fed news, tumbling sharply to fresh lows on the day. Gold hung onto gains achieved before the meeting ended, with spot gold recently trading at $2,320.70 an ounce. Silver was also trading higher after the Fed meeting concluded at $26.70.

Where is Inflation Right Now?

The most recent March Consumer Price Index rose on an annual basis to 3.5%, up from the February 3.2% reading. That’s well above the Fed’s stated 2% target rate and unfortunately for Americans going in the wrong direction.

The Labor Department delivered additional concerning news on the inflation front when it said that total compensation for U.S. workers increased 1.2% in the first quarter. That marks a 0.9% increase from the end of last year. Why does this matter? Increasing levels of wage growth could further stoke broad inflation if employers pass higher labor costs to consumers through price increases.

Gold Prices up Astonishing 23% in Last Six Months

In the face of the Fed’s struggling battle against inflation and amid broader worries around slumping stocks and slowing economy, gold has served as a safe-haven for investors.

Gold has climbed a remarkable 23% over the last six months, recently touching a new all-time record high above $2,300 an ounce. Physical investment demand for gold bars and coins has been rising in anticipating of even further price gains ahead in precious metals.

Today’s action reveals the Fed’s holster is empty and out of bullets in the inflation battle. The Fed meets next on June 12 and current market projections reveal only a 6% chance of a Fed rate cut at that meeting, according to the CME Fed Watch tool.

With few ways left to fight the still-rising inflation levels, gold will continue to act as a safe-haven for investors in this challenging economic environment.

Gold has served as a way to protect, preserve and grow wealth for 5,000 years. The time is ripe now for you to rebalance your portfolio and increase your allocation to gold. Wondering how much of an allocation to gold is right for you? Call Blanchard today and we can provide a personalized recommendation based on your long-term investment goals, your risk tolerance level and time horizon. We are here for you.

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