Interest Rates

Lower Gold Price, Stronger USD, Higher Interest Rates

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Investors should expect three things for the remainder of this year (2026) and throughout next year (2027): 1) a lower gold price, 2) a stronger U.S. dollar, and 3) higher interest rates.

LOWER GOLD PRICE 

Gold at $5400 in January 2026 was a major price peak. The trend for the gold price is down and will remain so for an indefinite period of considerable length. Gold’s long-term, erratic rise in price since 1971 reflects the loss of U.S. dollar purchasing power over the past century. Gold’s price tops in 1980, 2011, and 2026 were the culmination of decade-long catch-up moves to bring its dollar price in alignment with the erosion of purchasing power that had taken place.

The 1980 peak price for gold gave way to a 70% decline that lasted twenty years, and the prior $850 peak price was not surpassed until twenty-eight years later, in January 1980.

The gold price peak in 2011 was followed by a 45% decline that lasted nearly five years. The 2011 peak at $1900 was not exceeded until nine years later, in August 2020.

The gold price peaked in January 2026 at $5400 oz. Five months later (June 2026), the price had dropped to about $4000 oz., where it found temporary support. After rising to $4650, the gold price fell back to $4112.

I expect gold to break $4000 on the downside, and it could go as low as $3000 by the end of this year or early next year.

STRONGER U.S. DOLLAR

The past four years (2022-26) show relative dollar strength/weakness at a higher level than at any other time in the past forty years. The price action for DXY between 90 and 100 lasted for seven years and provides substantial support.

The recent breakout above 100 for DXY (US Dollar Index) has taken it to as high as 101.8. After some brief consolidation below 100, DXY is now above 102 and is moving strongly to the upside.

There are no better fiat alternatives to the U.S. dollar. That is because all governments inflate and destroy their own currencies.

Regarding BRICS, I said the following…

“Without convertibility, any new currency, even one issued with the pretense of being backed by gold, is just another empty promise and another substitute for real money, i.e., gold. 

Do you trust the governments of Russia and China, or any quasi-government authority, to institute and maintain any proposed new currency (gold-backed or not) that would supposedly be a better alternative to the U.S. dollar?

As bad as the dollar is, you won’t get a better alternative from BRICS or any of its countries. (see Throwing Gold BRICS At Broken Windows)

CBDCs are digital fiat currencies. With the move to eliminate cash, the U.S. dollar is pretty much a digital currency anyway.

The U.S. dollar will continue to strengthen versus other currencies and could gain in purchasing power as dollar prices for most assets (stocks, bonds, commodities, and real estate) are likely to suffer huge declines soon.

HIGHER INTEREST RATES

The Federal Reserve pursued a policy of lower interest rates that lasted forty years. Then, in an about-face that slammed the bond market and rate-sensitive investors, it told everyone that “spiked punch” would be more expensive for quite some time.

The Fed first announced a shift in emphasis regarding price stability and interest rate policy in March 2022…

“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate” (FOMC, March 16, 2022)

The financial press coined the exact phrase “higher for longer” shortly thereafter, and former Chair Powell himself confirmed the meaning and accuracy of its use at the September 2023 Federal Open Market Committee (FOMC) meeting, emphasizing that borrowing costs would remain elevated for much longer than investors initially hoped…

“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.” (J. Powell, Jackson Hole, Wyoming, August 2022)

In an interview a couple of years ago, former Fed Chair Powell said…

“I think instinctively – I can’t prove this; we’re going to learn about this empirically – but it seems to me that the neutral rate is probably higher than it was during the intra-crisis period. And so, rates will be higher.“

No matter the extent of collateral damage thus far, the potential for further harm to financial markets and the economy is likely, as interest rates could rise much higher. This is true regardless of Federal Reserve intentions. Here’s why…

The Fed’s action caused a misallocation of resources and inefficient use of capital, thereby distorting the markets.

Rates were forced to lower levels that were not economically efficient. The rates were held at those levels for too long. A cleansing of sorts has to occur before the economy can build momentum that reflects lasting, real growth.

That next wave higher for interest rates could be triggered by a collapse in the credit markets. The credit collapse could push the world economy into a severe economic depression. (see The Looming Threat of Credit Collapse and Deflation)

SUMMARY AND CONCLUSION 

Gold and dollar-denominated assets will soon see huge price drops. The inflationary wave that carried them to such extremes is in danger of breaking.

The likelihood of much higher interest rates and lower bond prices is high and rising.

The U.S. dollar will continue to strengthen on both a relative and absolute basis, defying the naysayers for now. (Also see Bonds Break Badly; Bad News For Investors)

Bond Market Crack Widens; The Chasm Will Swallow Stocks…

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(NOTE: This article first appeared at TalkMarkets.com on August 17th, 2026)

…AND EVERYTHING ELSE

The latest auction results left the 30-year U.S. Treasury bond yield at its highest point in nearly twenty years. Correspondingly, bond prices are at their lowest point since 2007. I referred to this in a previous article…

“It has been twenty years since bond prices traded below current levels, and, conversely, interest rates exceeded current levels. A drop in bond prices now will have consequences that younger investors are unfamiliar with and unprepared for.” (see Bond Market Says It All)

What are some of those consequences?  Higher borrowing costs and stricter credit terms for individuals and businesses would curtail economic growth; in addition, all economic activity could be hampered severely. A weaker economy would lead to higher unemployment. More people out of work might spark social unrest.

The world economy functions on credit. If things get bad enough, we could find ourselves in the middle of a severe recession, or even a full-scale depression. Throw in some bankruptcies and bank failures, and it is not too difficult to see the possibility of another Great Depression. If that seems remote or unlikely, then consider the additional negative impact of a world war and trade tariffs.

WHAT ABOUT STOCKS? 

Stocks are headed for a fall. A collapse in bond prices could trigger an all-asset collapse. At this point, other assets such as cryptocurrencies, gold, and silver have dropped significantly from their recent peaks in 2025 and 2026. Enthusiasm for the next big thing (NFTs, cryptocurrencies, AI, etc.) waxes and wanes quickly.

Stock prices are bloated, and investors are unprepared for what is coming. For more about this, see my article Buffet’s Cash Cache.

NOWHERE TO HIDE 

Under more normal circumstances, when stocks decline, investors often seek the relative safety of bonds. In this case, a falling bond market could be the trigger that sends stock prices lower, so where would investors turn if bond prices are dropping as fast or faster than stocks?

Cash and cash equivalents, such as money market funds and CDs. Short-term treasuries would be the best choice since bank failures would negate any special attraction for CDs and time deposits. Bankruptcies and default risk increase the risk of “breaking the buck” in money market funds, so again, T-bills get the nod.

CONCLUSION

It doesn’t matter what you own at this point. The popping of investors’ inflation-supported balloons (stocks, bonds, commodities, real estate, cryptocurrencies, etc) will be devastating.(see Complete Financial Collapse Is Unavoidable)

FOMC HogWarsh

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FOMC remains on autopilot for the time being. The decision to keep the target federal funds rate at 3.5-3.75 percent is primarily due to a perceived need to appear non-confrontational.

Fed Chair Warsh did his best to avoid taking a stand or telegraphing any hints about Fed policy by not answering questions directly. This leaves open the door for changes in rate policy in either direction.

Think about it. If the Fed raises rates and triggers a collapse in the bond market that spreads to stocks and other financial assets, and pushes borrowing costs higher, who gets the blame?

A surprise move to cut rates, now or later, could send the bond market into a tailspin for a different reason. Severe negative repercussions for the U.S. dollar would translate directly to long-term interest rates and send them much higher due to the worsening effects of inflation.

As for the bond market, it did its part by sinking to a new 20-year low. Rates on U.S. Treasury long-term bonds are now at their highest point in two decades.

If the deterioration continues, Kevin Warsh and the Fed can react more decisively than their latest action implies.

The question is whether falling bond prices and higher interest rates result from massively huge credit problems OR the ongoing U.S. dollar/inflation concerns. That is the never-ending dilemma facing the Fed, and from which there is no escape. This leads to the proverbial “kicking the can down the road” lack of decisive action, except when a financial crisis demands it.

WARSH COMMENTS ON INFLATION 

“We recognize that inflation has been running well ahead of the Fed’s long-stated inflation goal of 2 percent that’s been going on for more than five years. Persistently high prices are a burden for the American people.” (Chairman Warsh’s Press Conference June 17, 2026)

The various task forces listed by Chair Walsh are, at best, a smoke screen. This is particularly true of “the one on inflation frameworks“. There are no “drivers of inflation” other than the Federal Reserve. (see Inflation Is Created By The Federal Reserve)

FORWARD GUIDANCE 
You won’t hear it from Kevin Warsh, or any other Fed chair or governor. You might hear an apology (Greenspan), or an admission of guilt (Bernanke), after the fact…
     “… I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” (Alan Greenspan, 2008)
    “Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again” (Ben Bernanke to Milton Friedman,       2002)
Or, you might hear words of assurance like this…

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes, and I don’t believe it will be.” (Janet Yellen, 2017)

CONCLUSION 

You can expect the soap opera known as FOMC policy meetings to continue with lots of fireworks. The display will be spectacular and devastating. And it cannot be cancelled due to inclement weather or extreme fire hazard.

Changing the channel won’t help. The message will be the same on all stations. (Also see Stubborn Gold & Slumping Silver)

 

 

Ex-Chair Powell True To His Word – Higher For Longer

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HIGHER FOR LONGER

The Fed first announced a shift in emphasis regarding price stability and interest rate policy in March, 2022…

“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate” (FOMC, March 16, 2022)

The financial press coined the exact phrase “higher for longer” shortly thereafter, and Powell himself confirmed the meaning and accuracy of its use at the September 2023 Federal Open Market Committee (FOMC) meeting, emphasizing that borrowing costs would remain elevated for much longer than investors initially hoped…

“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.” (J. Powell, Jackson Hole, Wyoming, August 2022)

In an interview two years ago, Powell said…

“I think instinctively – I can’t prove this, we’re going to learn about this empirically – but it seems to me that the neutral rate is probably higher than it was during the intra-crisis period. And so, rates will be higher.” CHARTS

Below are three charts, courtesy of the Federal Reserve Bank of St Louis (FRED). The charts depict the path of interest rates for 5-Year, 10-Year, and 20-Year U.S. Treasury Securities…

 

In all three cases, it is clear that interest rates have moved sharply higher and remained there for “much longer than investors initially hoped”.
Since higher interest rates are correlated directly with lower bond prices, we should see the same pattern in reverse when looking at bond prices over the same time period – and we do.

From its high of 180 in early 2020, the U.S. Treasury Long-Term ETF (TLT)  has declined by more than 50%. It could get a lot worse.

MORE DAMAGE TO COME

No matter the extent of collateral damage thus far, the potential for further harm to financial markets and the economy is likely, as interest rates could rise much higher. This is true regardless of Federal Reserve intentions. Here’s why…

The Federal Reserve pursued a policy of abnormally low interest rates for nearly four decades. The Fed’s action caused a misallocation of resources and inefficient use of capital, thereby distorting markets. Cheap and easy credit became a way of life. (see Two Reasons The Fed Manipulates Interest Rates)

It wasn’t always that way. Long-term historical averages for interest rates indicate a number somewhere between 6% and 8%. At 4-5% now, we are scarcely knocking on the door that opens into the lower end of the historical average range for interest rates.

HOW HIGH COULD RATES GO?

The answer to how high rates can go is mostly guesswork. But it might help to know how high interest rates went during the inflationary 1970s. Those higher rates were not the policy of the Federal Reserve. They were the result of market factors stemming from a half-century of Federal Reserve inflation.

The effects of inflation and concern about the dollar’s loss of purchasing power drove bond prices down drastically and interest rates up steeply. Bond investors demanded higher returns to offset the inflation risk inherent in holding a fixed-income security.

At one point, investors eschewed even the very shortest-term securities. Interest rates on short-term (1 year or less) U.S. Treasury bills rose as high as 18%. The yield on 10-year bonds rose to 15%.

WHAT TO EXPECT

Kevin Warsh and the Federal Reserve will probably vote to increase rates soon. Whether that happens or not, interest rates could go much higher without any nudge from the Fed.

That next wave higher could be triggered by a collapse in the credit markets. The credit collapse could push the world economy into a severe economic depression.

Rates were previously forced to lower levels that were not economically efficient. The rates were held at those levels for too long. A cleansing of sorts has to occur before the economy can build momentum that reflects real and lasting growth.

The likelihood of much higher interest rates and lower bond prices is high and rising.  (see The Looming Threat of Credit Collapse and Deflation)

 

What Powell Said And Why It Matters

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WHAT POWELL SAID

“a marked slowing in both the supply of and demand for workers…suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.” and “…the shifting balance of risks may warrant adjusting our policy stance,” Jerome Powell – Jackson Hole, WY 8/22/25

An AI summary of Powell’s remarks sans the emotion and frothiness of investors and others said that “Powell’s Jackson Hole remarks were carefully calibrated—not a firm commitment to cutting rates, but a clear signal of readiness to pivot if economic conditions warrant it. He recognized rising risks in the labor market and suggested that, given such risks and the Fed’s already restrictive stance, a policy adjustment might be justified. However, any change would be data-driven and cautious.”

WHY IT MATTERS 

Investors and the media interpreted those remarks as the signal that “the race is on”. Someone said that Powell’s remarks “opened the door to a possible interest rate cut”. 

Investors rushed through the door with complete abandon and drove stock prices up to new highs, seemingly oblivious to Powell’s expressed statements  that conditions “may warrant adjusting our policy stance” and “any change would be data-driven and conscious.”

The door was kicked open almost one year ago when the Federal Reserve announced its intention to lower the Fed funds target rate in September 2024. After two successive cuts, the target rate has remained unchanged.

Jerome Powell acknowledges the growing risks in the labor market and the presumed risk of higher inflation from tariffs. The labor market threat is real and appears to be significant. Hence, Powell’s comments that labor market risks can accelerate “quickly in the form of sharply higher layoffs and rising unemployment” are noteworthy.

Tariffs are not inflationary.

“Tariffs are taxes imposed by a government on imported goods. Tariffs are assessed at the port of entry and must be paid before the goods can be unloaded. Whoever (businesses, consumers, etc.) imports the goods pays the tariff(s) to U.S. Customs and Border Protection, a government agency. Subsequently, remittance is made to the U.S. Treasury. (see Tariffs Are NOT Inflationary)

The effects of tariffs compound the risks associated with the labor market. Any acceleration in layoffs and unemployment will be exacerbated by the effects of tariffs. The results could lead directly to deflation and economic depression.

CONCLUSION

The Fed dilemma pertaining to interest rate policy remains the same. Lower interest rates and aggressive monetary growth will slam the dollar. Higher rates and restrictive monetary policy will depress economic activity.

Holding rates stable seems the more prudent choice. If nothing else, a disastrous day of reckoning might be postponed.

Far from being a boon to growth (domestic or otherwise), the effects of tariffs will magnify and accelerate problems in the labor market and the economy. Those effects can overwhelm Fed efforts to stave off financial and economic collapse.

The worst that could happen is likely to come quickly. (also see Complete Financial Collapse Is Unavoidable)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

Interest Rates Could Go Much Higher

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It is reasonable to suggest that interest rates might not have peaked. That statement applies to both short-term and long-term rates. Currently, the discount rate on short-term Treasury bills is 4.13%. Long-term Treasury bonds are yielding 4.97%.

Only five years ago, short-term rates flirted with zero and the 10-year Treasury rate was less than one percent at .89%. The increase in rates since early 2020 is something to behold. The damage to bond prices is evident on both charts (source) below…

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Backtalk From The Bond Market

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BACKTALK FROM THE BOND MARKET

Investors keep looking to the Fed for supposed “forward guidance”. They are looking in the wrong place. Since mid-December, bond prices have declined another 5% and are currently at new 52-week lows. Here is an updated chart of U.S. Treasury Bond ETF (TLT)…

U.S. Treasury bond prices have now declined 16% since the Fed announced a reversal in its interest rate policy and the first rate cut last September. The latest weakness comes in the face of a second rate cut, so it begs a repeat of the question I posed last October…
“Why are bond rates rising at the very time the Fed is trying to move interest rates lower?” (Fed Cuts Rates But Bond Rates Are RISING)
Subsequently, the Fed announced a second rate cut, but the announcement lacked the conviction that inflation is under control and that multiple rate cuts could be expected for 2025.
I don’t so much think the Fed has suddenly had a change of heart. The situation is precarious and the cumulative effects of more than full century of money creation (inflation), mis-management, and manipulation have evolved into a game of playing catch with a ticking time bomb.
Former Fed presidents Greenspan, Bernanke, and Yellen all know this and have kicked the can down the road. Jerome Powell was likely aware of the ongoing threat of a catastrophe from which there is no return. The opportunity to be “numero uno” for a season, however, must have displaced any fear of presiding over a credit collapse and economic depression.
THE FED’S DILEMMA

The Federal Reserve doesn’t know what to do; but it probably doesn’t make much difference anymore.

A dilemma is “a situation in which a difficult choice has to be made between two or more alternatives, especially equally undesirable ones.” (New Oxford American Dictionary)

We are hooked on low interest rates and the drug of cheap and easy credit. Maintaining low interest rates furthers that dependency and heightens the risk of overdose. The result would be a swift and renewed weakening of the U.S. dollar accompanied by the increasing effects of inflation.

On the other hand, raising interest rates more could trigger another credit implosion which could lead to deflation and a full-scale depression.

Doing nothing is an option. The problem is that the Fed is holding that “ticking time bomb” and doesn’t know how long it will be until its world blows apart.

WHAT TO EXPECT NEXT

Don’t trouble yourself worrying about who the next Fed chair will be. It doesn’t matter. It is too late in the game for a change to have any meaningful impact. This includes speculation that Judy Shelton might get nominated again. Yes, she is an excellent choice; and, for all of the right reasons.

Unfortunately, that would expose the game of chess being played by the Federal Reserve and its owners. (see Federal Reserve – Conspiracy Or Not? and Federal Reserve vs. Judy Shelton)

The worst possibilities come after something big happens. The Federal Reserve and the U.S. government will work together to stave off any possibility of loss of control. That means that everyone – investors,  traders, citizens, communities – will be subject to a host of new economic and monetary regulations, restrictions, executive orders, etc.

It will be like nothing we have seen in the past and beyond anything we can currently comprehend. (also see Bond Investors To The Fed – “Not This Time”)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

 

Bond Investors To The Fed – “Not This Time”

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RE: FED POLICY…

“I think instinctively – I can’t prove this, we’re going to learn about this empirically – but it seems to me that the neutral rate is probably higher than it was during the intra-crisis period. And so, rates will be higher.”  (Jerome Powell, July 2024)

Powell’s comments were from an interview conducted two months prior to the announcement that the Fed Funds target rate was lowered after more than two years of higher interest rates.

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All Hail The Fed – A New Day Dawns

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ALL HAIL THE FED!

As investors continue to gobble up stocks and the dollar prices of most assets continue to climb, it would appear that all is well. Concerns about weakening economic activity and recession have been moved to the back burner. Now, the focus is squarely on inflation.

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Fed Cuts Rates But Bond Rates Are RISING

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FED CUTS RATES, BUT…

Just a couple of weeks ago, on September 18th, the Fed announced a 50 basis points cut in interest rates. To be clear, the announced cut was generally expected and already discounted in the markets. Most markets had risen substantially over the prior two years in anticipation of a change in direction for interest rates, which had risen sharply and then had remained at higher levels until the recent announcement.

Most investors and analysts appeared to be waiting for the Fed to confirm what was already “known and expected”. Reaction to the official announcement was mostly positive as stock prices continued their upward march and mortgage rates declined.

Bond prices, however, peaked at about the same time the Fed made official its latest gratuitous action. Over the past three days, bond prices have dropped sharply, gapping down at the market open each day. Below is a chart of TLT (20+ Year Treasury Bond ETF)…

Since the Fed announcement, TLT has dropped from a 52-week peak of 101.64 to 95.55 at today’s close. That is a drop of 6% in bond prices at a time when other markets are shouting approval of Fed action and extending recent gains. Why are bond rates rising at the very time the Fed is trying to move interest rates lower?

INFLATION? RECESSION?

A singular possibility is that the bond market sees something other markets don’t; at least, not yet. What is likely troubling to the bond market at this time is the threat of a resurgence of inflation; more correctly, the effects of inflation.  Cheaper money and credit now, in the short term, could have serious negative consequences later on. Bigger increases in the CPI and PPI will get everyone’s attention.

A peculiar contradiction to the rise in bond rates is the fact that mortgage rates have declined. In other words, mortgage rates are reflecting what might be expected to happen as a result of the Fed’s efforts to engineer rates lower for now. But, that does not explain why bond rates would move opposite to the Fed’s action and intent.

Finally, the bond market may be ahead of the curve with respect to what comes next. Stock investors seem almost oblivious to the reality of accelerating deterioration in the economy. Stock prices will eventually reflect that reality. (see If The Markets Turn Quickly, How Bad Can Things Get)

Also, the bond market might be telling us that rates need to move higher, and remain at a higher level that is more consistent with historical averages. This could happen in spite of the Fed’s efforts to lower rates, regardless of intention and desire. (also see What Happens After A Rate Cut Is Announced?)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED