{"id":37602,"date":"2022-02-17T04:17:47","date_gmt":"2022-02-17T12:17:47","guid":{"rendered":"https:\/\/goldco.com\/?p=37602"},"modified":"2024-09-03T19:05:43","modified_gmt":"2024-09-04T02:05:43","slug":"discord-within-the-fed-could-help-boost-the-gold-price","status":"publish","type":"post","link":"https:\/\/goldco.com\/discord-within-the-fed-could-help-boost-the-gold-price\/","title":{"rendered":"Discord Within the Fed Could Help Boost the Gold Price"},"content":{"rendered":"

With inflation once again hitting records not seen in 40 years, and continuing to climb each month, the Federal Reserve finds itself in a sticky situation. Its hand is being forced, and it is coming under increasing pressure to do something, anything, in order to stave off inflation.<\/p>\n

The midterm elections are coming up quickly, and continued high inflation this fall would likely doom Democrats in the elections, so the political pressure is ramping up. Approval ratings for the Biden administration are also low, and most Democrats don\u2019t even want Biden to be the Democratic Party\u2019s nominee for the presidency in 2024, that\u2019s how bad his performance has been.<\/p>\n

So the pressure is out there for the Fed to do something, but just what is it that the Fed will do? We\u2019ve already heard from the Fed that its tapering program is going to be accelerated and should wrap up in March. At some point the Fed intends to normalize its balance sheet, although it would likely take a decade or more to do so. And the market expects the Fed to hike rates, but when and how much is anyone\u2019s guess at this point.<\/p>\n

Right now even Fed policymakers and Federal Open Market Committee (FOMC) voting members aren\u2019t in agreement over the proper course of policy. And that disagreement could frustrate the Fed\u2019s ability to get anything done, potentially sabotaging the Fed\u2019s response to inflation. If the Fed were unable to keep a lid on inflation, that could provide significant impetus for gold to continue rising in price.<\/p>\n

Hawks vs. Doves<\/h2>\n

As in years past, the conflict at the Fed is going to be between hawks and doves. Many Fed officials aren\u2019t necessarily going to stay true to their previous beliefs however, as 7.5% inflation has a way of making hawks out of even the most inflationary doves.<\/p>\n

What we do have, however, is a potential conflict over how high to raise interest rates and how fast. After all, according to the Taylor Rule, the current federal funds rate should be 18.9%<\/a>. Instead, it\u2019s at 0-0.25%.<\/p>\n

Attempting to raise the federal funds rate to a level that is actually able to fight inflation would be suicidal and would cause an immediate recession, if not an outright depression. But even smaller hikes could still cause some damage to the economy, hence the reason for disagreement among Fed economists.<\/p>\n

San Francisco Fed President Mary Daly has sounded the alarm already<\/a>, claiming that if the Fed is too aggressive in hiking rates that it could damage the economy. That seems to indicate that she wouldn\u2019t be supportive of the 50 basis point hike that some people are speculating might happen at the Fed\u2019s next FOMC meeting.<\/p>\n

On the other hand you have St. Louis Fed President Jim Bullard, who just two weeks ago was discounting the need for a 50 basis point rate hike. Yet now he himself is proposing a rate hike of a full percentage point, i.e. 100 basis points.<\/p>\n

That\u2019s a pretty stunning about face, but Bullard justifies it by claiming that the Fed\u2019s credibility is on the line<\/a>. If the Fed doesn\u2019t demonstrate that it\u2019s serious about inflation, then the public won\u2019t believe that it\u2019s serious, and thus inflation expectations could get out of control. In essence, Bullard wants a big move in order to restore public confidence in the Fed\u2019s ability to combat inflation.<\/p>\n

The odds are that Bullard won\u2019t get that. But it\u2019s also increasingly clear that a 25 basis point hike just isn\u2019t going to cut it. That would be too little, too late. That\u2019s why markets are expecting a 50 basis point hike in March, and possibly successive 50 basis point hikes thereafter. That\u2019s about the minimum the Fed can do at this point to try to tame inflation that risks spiraling out of control.<\/p>\n

Gold Price Forecast<\/h2>\n

Normally the conventional wisdom states that rate hikes are a bad thing for gold<\/a>, and that the gold price will fall when rates are being hiked. But we\u2019re not in normal times right now, and the conventional wisdom is likely wrong.<\/p>\n

Instead, we\u2019re entering a period in which, despite rates being hiked, real interest rates are going to be strongly negative. After all, with inflation at 7.5%, even a 5% nominal federal funds rate would imply a real federal funds rate of -2.5%.<\/p>\n

Then there\u2019s the fact that the US economy could likely be entering a recession, as economic growth is beginning to stagnate as high inflation and continuing supply chain problems take their toll. That right there should be conducive to further price growth.<\/p>\n

Goldman Sachs has announced that its 12-month price target for gold is $2,150 per ounce<\/a>, up from its previous target of $2,000 an ounce. And the worse the economy gets, the more gold should rise.<\/p>\n

Gold in Your Portfolio<\/h2>\n

Thousands of investors have already taken advantage of the opportunity to invest in gold recently. With stock markets in what looks to be a slow and steady decline, inflation pushing ever higher, and the economy weakening, many investors want to place themselves ahead of the curve when it comes to protecting their assets.<\/p>\n

Many investors still remember the 2008 crisis, and the painful losses they endured as stock markets lost over 50% of their value. And they also remember how gold performed phenomenally in the aftermath of the crisis, nearly tripling in price by 2011 to set a new record high, all while stock markets continued to flounder.<\/p>\n

Buying and holding gold could be one of the best decisions many people make today, if the economy does enter a recession and if gold performs as well during the next recession as it has during previous recessions. If investors had invested in gold before the 2008 crisis instead of stocks, they could have prevented significant losses to their portfolios, and improved their portfolio\u2019s performance after the crisis. And that\u2019s why so many investors are rushing into gold today.<\/p>\n

Whether you invest in a gold IRA<\/a> or prefer to directly buy gold coins or bars<\/a>, there are numerous options out there for you. Call the gold experts at Goldco today to learn more about the options available to you so that you too can benefit from owning gold.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

With inflation once again hitting records not seen in 40 years, and continuing to climb each month, the Federal Reserve finds itself in a sticky situation. Its hand is being forced, and it is coming under increasing pressure to do something, anything, in order to stave off inflation. The midterm elections are coming up quickly, […]<\/p>\n","protected":false},"author":3,"featured_media":37603,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[208,209],"tags":[219,652,226,221],"class_list":["post-37602","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-federal-reserve","category-precious-metals","tag-fomc","tag-gold-price","tag-inflation","tag-monetary-policy"],"acf":[],"yoast_head":"\nDiscord Within the Fed Could Help Boost the Gold Price – Goldco<\/title>\n<meta name=\"description\" content=\"Fed policymakers disagree on how big rate hikes should be. 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