"Everything you need to know about gold"
INVESTOR EXPECTATIONS VERSUS FED
Quite a few people are convinced that they know what the Fed will do next, and why. How do they know? Is it really that obvious?
There are more questions to consider, too. Will the effects of continued actions, or changes for any reasons, achieve the desired results? If they don’t, what comes after that?
The emphasis on “NOT” in the title of this article is critical to a better understanding of what inflation is – and isn’t. We hear all the time: “Inflation rose sharply last month as consumer prices increased by .6%”, or something similar.
We also hear that higher prices themselves are a cause of inflation. Example…
DID THE FED CAUSE THE 2008 RECESSION?
A review of the history regarding Fed interest rate policy yields information that says “yes”.
On June 30, 2004, the FOMC began to tighten policy by increasing the Fed Funds target rate to 1¼%. By June 2006, two years later, the target rate was at 6 1/4%. It remained at that level for the next year – well into 2007.
FED’S GAME PLAN IS ALWAYS CHANGING
“Inflation is likely to take longer to return to our price stability goal than previously expected” Fed Chair Jerome H. Powell March 16, 2022
GOLD, INFLATION, AND THE FEDERAL RESERVE
Below are my comments and answers to various questions about gold, inflation, and the Federal Reserve. They are “for the record” so to speak, and are meant to be taken literally and specifically…
CHAIRMAN POWELL
In 1970, an R&B vocal group called Chairmen of The Board debuted their first single – Give Me Just A Little More Time…
When I see Chairman Powell responding to questions about the Fed’s efforts to raise interest rates, including how effective their efforts are and when the expected/hoped for results will begin to show up, I hear the song playing in my mind.
What are the ‘hoped-for results’? In the Chairman’s words, “to return inflation to a range more in line with the Federal Reserve’s 2% target” or similar words to that effect. (see The Fed’s 2% Inflation Target Is Pointless) The implied purpose is to suppress inflation (more correctly, the effects of inflation) before it turns into something much worse, like runaway inflation or hyperinflation.
BULL (THE FED)
Today, more than ever before, focus is on the Federal Reserve. The general public has joined economists, financial analysts, and market participants in monitoring and parsing every statement regarding Fed action and policy.
Each morsel of data receives the the strictest attention. The actions are mostly for naught, of course. That is because most of those asking the questions are unaware of certain facts that would change the nature and tone of Fed focus overnight.
GOLD PRICE RATIOS
There are two charts below for your observation. We will review each of them in sequence and then provide some commentary and conclusions.
FED DILEMMA IS NEVER-ENDING
The Federal Reserve doesn’t know what to do. Even worse, though, is that it probably doesn’t make much difference what they do – or don’t do.
ONCE MORE WITH FEELING
“…try it one more time with feeling
Chairman take it from the top
This one is the big one Jay so give
it everything you got
(You can) make believe your makin’ me
believe each word you say
Let’s try it once more with feeling
and we’ll call it a day”
(original lyrics by Kris Kristofferson)
NOTHING CHANGES AT THE FED
The statement may sound obvious given that Jerome Powell has been nominated to continue his reign as head of the world’s most visible central bank. Some might think this is a good thing; and will allow the Fed to steer a course that will bring our economy back from the living dead.