On Wednesday of last week, the Federal Reserve raised interest rates by a quarter of a percentage point.
That put the federal funds rate at a 22-year high. It’s currently between 5.25% to 5.5%.
This decision, however, came after the Fed decided to pause rate hikes in June.
Up until then, the Fed had raised interest rates 10 consecutive times to fight inflation.
So, why did the Fed change its course of action?
Today, I’ll delve into the latest developments… show you how the data did not support another rate hike… and explain what you can do to protect your hard-earned dollars.
An “Ego” Hike
Last month, during the FOMC (Federal Open Market Committee) meeting, the Fed voted unanimously for a pause in rate hikes.
That’s Stage 2 of what I consider the Fed’s three-stage pivot from reducing the size of rate hikes, to rate neutrality, to eventually rate cuts.
Even so, the Fed did leave the door open for another possible rate hike or two… Here’s what I said after the June decision:
…Powell was all over the place in his Q&A.
He talked about house prices dropping because of high rates and the problems that high rates imposed on businesses.
On the other hand, he said inflation pressures are still running high, and there’s still a long way to go to get inflation down to their 2% range.
…Powell stressed the U.S. economy faces headwinds from credit tightening and that the extent of these effects remains, as he said, uncertain.
During that same meeting, Chairman Jerome Powell said the Fed would make its decisions based on the totality of data.
But the data did not show the need for another rate hike. That’s why I consider this a “vanity” hike or “ego” hike.
Let’s look at the facts…
The Rate Hike Was Not Based on Data
Overall, GDP growth is still slowing. In the second quarter of 2023, the growth rate was 2.40%, which is lower than the long-term average of 3.18%.
What’s more, consumer debt is at record highs. In the first quarter of 2023, aggregate household debt went up by $148 billion, a 0.9% rise from the last quarter in 2022.
Total household debt now stands at $17 trillion. That’s an increase of $2.9 trillion since the end of 2019, just before the pandemic started.
Not to mention, inflation has dropped. The latest Consumer Price Index (CPI) data, released after the June FOMC meeting, revealed the inflation rate was at 3%.
That’s the lowest inflation level we’ve seen since March 2021 and the closest we’ve gotten to the Fed’s inflation target of 2%.
And despite Powell going on about the hot labor market, the only significant sector of job increases in last month’s employment report was the services sector. That typically increases during the summer season.
So, all of this data did not scream the need for another rate hike…
What It Means for Your Money
If the data didn’t support more rate hikes, why did we get one?
Because the Fed wants to maintain its aura of control over the entire inflation situation…
We still remain in Stage 2 of the Fed’s three-stage pivot. That means we’ll see opportunities in hard assets such as gold, silver, and copper that hold their value relative to interest rate levels.
Plus, the factory construction boom that’s happening in the middle of America requires copper, steel, concrete, and iron… pushing those prices up.
As I discussed recently, the ongoing global heat wave will also boost energy prices as well as the share values of utility, oil, and gas companies.
And let’s not forget how the Fed just overstepped its boundaries in a truly unprecedented way…
On July 20, the Fed launched its FedNow quick payment system ahead of its scheduled July 31 release date. That’s a problem. FedNow lays the groundwork for a central bank digital currency (CBDC).
The more banks and major companies subscribe to FedNow, the sooner a digital currency can be introduced. That opens the door for more control over our financial privacy and our financial lives.
And it gives the Fed increased power to inflate our monetary supply. That’s why we will continue to monitor those developments very closely.
Meanwhile, you should continue to invest in gold to protect your wealth. Remember, gold has preserved wealth through every kind of crisis imaginable.
The best way to buy gold is with a combination of physical gold and gold stocks. You can buy physical gold online through accredited places like the U.S. Mint.
You can also buy a gold exchange-traded fund (ETF) that is backed by physical gold. Gold ETFs offer the advantage of holding gold without the hassle of storing, securing, or transporting it.
Regards,
 |
Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. As the Federal Reserve raises interest rates and enacts changes to our monetary system, it’s now more important than ever to position yourself ahead of the volatility that’s coming.
That’s why I found one asset that will help you stay on the right side of this monetary shift and become your own banker.
I put the details in a video presentation I released. I’ll also show you my No. 1 gold pick for 2023 and beyond… and three “unprintable” plays to take advantage of the Fed’s next major distortion of the financial system. Watch it here.