A recent report by Fitch Ratings indicates that ongoing high inflation coupled with the Fed’s massive interest rate hikes will drive our economy into a 1990-style mild recession next spring. The report states that high inflation will “prove too much of a drain” on household income next year and will significantly shrink consumer spending to the point that it causes a downturn during Q2 of 2023. Yet, experts say ongoing aggressive Fed rate hikes will allow gold and silver prices to maintain solid headwinds. “The central bank will not be able to get interest rates up to where they need to be to get inflation under control,” Darren Botha, portfolio manager at DRW Investments, told Kitco News. “When rates eventually peak, that will be a good environment for gold.”
CNN Business/Matt Egan
First on CNN: Next spring the economy will sink into a 1990-style mild recession, Fitch says
Stubborn inflation and the Federal Reserve’s jumbo-sized interest rate hikes will drive the American economy into a 1990-style mild recession starting in the spring, Fitch Ratings warned on Tuesday.
In a report obtained first by CNN, Fitch slashed its US growth forecasts for this year and next because of one of the most aggressive inflation-fighting campaigns by the Fed in history. US GDP is now expected to grow by just 0.5% next year, down from 1.5% in the firm’s June forecast.
High inflation will “prove too much of a drain” on household income next year, Fitch said, shrinking consumer spending to the point that it causes a downturn during the second quarter of 2023.
You can read the full story, here.
Quoth the Raven via ZeroHedge
Rate Hikes Will “Blow Up The Treasury”
The Fed is trapped in a box of their own creation. As a result, they may want to talk tough, but their ability to maneuver is severely restricted. The Fed claims that they’re targeting a terminal rate of 4.6% for Fed Funds, but if they did that for any period of time, they’d only succeed in blowing up the Treasury.
Our government has run obscene deficits over the past two decades. This was only made possible by the Fed suppressing interest rates. Despite a succession of Treasury Secretaries, the US debt was never termed out. The majority of the debt is actually quite short-term. During 2021, the Federal government paid $392 billion in interest on $21.7 trillion of average debt outstanding—or an average interest rate of 1.8%.
Now imagine if Fed Funds actually got to the terminal rate and stayed there for any period of time. What would paying an average rate of 4.6% on year-end 2021 debt do to the interest expense? Well, it rises by $636 billion to $1.028 trillion or the more than the cost of our entire military spending of $801 billion in 2021. Ignoring the budget pressure, the interest cost would then be 4.5% of total GDP, up from 1.7% in 2021. That’s like tying a lead weight around the neck of our economy.
You can keep reading, here.
Kitco News/Neils Christensen
Solid physical demand for gold and silver tells you where prices are going in the long term – LBMA
Persistent inflation will force the Federal Reserve to aggressively raise interest rates through the rest of the year, maintaining solid headwinds on gold and silver prices, according to a group of fund managers.
In a panel discussion during the London Bullion Market Association’s annual precious metals conference, participants generally agreed that gold and silver prices could struggle through the rest of the year as rising interest rates and solid momentum in the U.S. dollar keep investment capital on the sidelines of the precious metals market.
However, sentiment on the stage was still relatively bullish for gold and silver’s long-term potential, despite the short-term headwinds.
Continue reading, here.