This week, the Federal Reserve approved its first interest rate hike in more than three years.
“At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us: maximum employment and price stability. Today, in support of these goals, the FOMC raised its policy interest rate by 1/4 percentage point. The economy is very strong, and against the backdrop of an extremely tight labor market and high inflation, the Committee anticipates that ongoing increases in the target range for the federal funds rate will be appropriate. In addition, we expect to begin reducing the size of our balance sheet at a coming meeting…”
“We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation. We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability. As we emphasize in our policy statement, with appropriate firming in the stance of monetary policy, we expect inflation to return to 2 percent while the labor market remains strong. That said, inflation is likely to take longer to return to our price stability goal than previously expected. The median inflation projection of FOMC participants is 4.3 percent this year and falls to 2.7 percent next year and 2.3 percent in 2024; this trajectory is notably higher than projected in December, and participants continue to see risks as weighted to the upside…”
Chairman Powell also hinted at an aggressive path forward, with increases coming at each of the remaining six FOMC meetings in 2022.
When asked if the Fed was moving too fast and could possibly tip the economy into a recession, Powell said not only that our economy could handle It but that it will flourish.
“I guess I would start by saying that, in my view, the probability of a recession within the next year is not particularly elevated. And why do I say that? Aggregate demand is currently strong, and most forecasters expect it to remain so. If you look at the labor market, also very strong; conditions are tight, and payroll job growth is continuing at very high levels. Household and business balance sheets are strong, and so, all signs are that this is a strong economy and indeed one that will be able to flourish, not to say withstand, but certainly flourish as well in the face of less accommodative monetary policy. So, I guess that’s how I would say I’m looking at that. Of course, the objective is to achieve price stability while also sustaining a strong labor market, and that is our overall objective, but we do feel the economy is very strong and well-positioned to withstand tighter monetary policy.”
You can watch the full press conference here.
With the Fed rate hikes now upon us and the ongoing Russia-Ukraine war, Tim Hayes, Chief Global Investment Strategist at Ned Davis Research, told Kitco News that now is the time to be overweight in gold as volatility and uncertainty dominate markets.
He said, “I would say, you want to hold 10% to 15% in gold until we get into an environment where interest rates will become more threatened [by] gold, which is not the case yet.”
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