Many experts are waving a warning flag at the Fed after Wednesday’s 75 basis point interest rate hike. Peter Boockvar, chief investment officer at Bleakley Financial Group, says the Fed has “now entered the ‘danger zone’ in terms of the rate shock they are throwing onto the US economy.” While Tavi Costa, Portfolio Manager at Crescat Capital, warns that high debt-to-GDP, excessive company valuations, and elevated inflation mean that Fed tightening is “going to absolutely kill demand.”
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Jerome Powell is heading into the ‘danger zone’
When the Federal Reserve started hiking interest rates to combat decades-high inflation, Chair Jerome Powell stressed that the central bank could increase borrowing costs without inflicting too much damage on the economy.
“We feel the economy is very strong and will be able to withstand tighter monetary policy,” Powell said in March.
Six months later, Powell is sounding less assured. The Fed announced its third consecutive supersized interest rate hike on Wednesday and indicated that it would continue to be aggressive should inflation remain elevated.
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The Fed will ‘absolutely kill’ demand, markets, if it keeps tightening – Tavi Costa
High debt-to-GDP, excessive company valuations, and elevated inflation mean that Fed tightening is “going to absolutely kill demand,” said Tavi Costa, Portfolio Manager at Crescat Capital.
“Those three macro imbalances create, in my view, major political constraints when it comes to fighting inflation,” he said. “I don’t think the economy can really handle what we’re doing.”
The Federal Reserve increased its key interest rate by 75 basis points on Wednesday, causing the Dow Jones to close 500 points lower.
“In my view, we’re going to see a bigger decline in equity markets,” Costa claimed. “I don’t think this is an environment where you want to be buying the dip.”
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Gold Miners Look Beyond Fed Hikes to Predict $1,800 Comeback
Not even the most hawkish Federal Reserve in decades can beat down the exuberance of gold enthusiasts at the industry’s biggest annual gathering.
Bullion prices will reach $1,806.10 an ounce by year end, according to the average estimate in a survey of 10 participants at the Denver Gold Forum, the yearly meetup of mining executives, investors, bankers and analysts. The forecast is 7.8% above Monday’s spot closing price. The last time gold settled that high was at the beginning of July.