Fed Hints Rate Hike Cycle Is Almost Over
The Federal Reserve hiked interest rates by 0.25% on Wednesday in its ongoing battle to bring inflation down. The big change in today’s Fed announcement was new forward guidance suggesting that they are near the end of the current Fed rate hiking cycle.
Investors continued the recent rush into the safety of precious metals. Gold ticked higher after the Fed move, trading as high as $1,947 on Wednesday afternoon.
The Fed’s rate hike today was a smaller amount than recent rate hikes and brought the Fed’s benchmark interest rates to a 4.50%-4.75% range. Last year, the Fed hiked interest rates seven times, and four of those included a super-sized 0.75% rate increase.
Reading between the lines
As Fed watchers on Wall Street scoured the official statement for clues on what could lie ahead, there were hints that the rate hike cycle could be ending.
Today, the Fed said they “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” when determining the extent of future increases in interest rates. That’s a change from past Fed statements which said those factors would impact the “pace” of future increases.
Walking a fine line between inflation and recession
The Fed has been trying to thread a needle between busting inflation without causing a recession. Many economists now believe a recession is inevitable in the U.S. in 2023, as the aggressive rate hikes seen last year begin to filter through the economy. It is well known that the impact of Fed rate hike changes take months to actually impact the economy. Just like a fully loaded tanker going full steam in the ocean, it takes time to turn the ship.
Gold posts double digit gains
In recent months, gold surged sharply higher, climbing 19% from November into the late January high, as the precious metal recently approached $1,950 an ounce level. With a recession on the horizon, gold could easily climb to new all-time highs in the weeks ahead – recent forecasts called for gold climbing as high as $3,000 an ounce. Today’s gold level offers an attractive buying opportunity for long-term investors who seek to preserve and grow their wealth. Do you own enough?
Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world, and the latest tangible assets news delivered to your inbox weekly.