15 December 2022
The Federal Reserve hiked interest rates for the seventh time in 2022 on Wednesday, increasing its benchmark rate to 4.25-4.50%, a 15-year high. The Fed’s rate increase of 0.5 percentage points was smaller than the last four rate increases. The gold market traded above the $1,800 level after the Fed news and the current environment for gold is positive.
Over the past two months, gold has soared 10% higher, trading from a low at $1,638 in early November to above $1,811 this week, and the trend points to more gold gains ahead.
Despite the Fed’s aggressive rate hike campaign this year, consumer inflation remains sharply elevated at 7.1% in November. While that is down from the 9% pace in June, inflation remains well above the Fed’s stated 2% target rate.
Fed’s Big Inflation Mistake
Inflation took hold in the spring of 2021 and accelerated quickly in the months that followed. At that time, the Fed incorrectly called inflation “transitory” and failed to act last year to stem the rising price trends.
The red-hot inflation levels create financial challenges for Americans across all income spectrums and the Federal Reserve has yet to tame high prices. The Fed has driven interest rates higher for everything from home mortgages to car loans to credit cards, and many Americans say they’ve reduced their holiday spending plans this year due to the runaway higher prices.
The Federal Reserve’s interest rate hikes also contributed to the plunge in stock market prices in 2022, with both stock and bond markets showing double digit declines year-to-date.
Inflation Isn’t Even Close to Being Over
While some categories like used cars and airline tickets fell in November, many consumer items saw continuing price increases. Grocery prices, dining out, recreation services (like tickets to sporting events) and prices for haircuts and other personal care services all increased. Wage inflation is also appearing amid the tight labor market which, in turn, creates conditions for a wage-price spiral, as higher wages fuel even more increases in consumer goods and services.
Brace for More Fed Rate Hikes…and Recession in 2023
The Federal Reserve’s projections on Wednesday reveal that most Fed policymakers expect to continue raising interest rates next year – pushing the benchmark rate as high as 5-5.25%, which is expected to push the economy into a recession.
Protect and Grow Your Wealth with Gold
With the potential for a Fed-induced economic recession in 2023, the outlook is bright for gold. In the midst of the 2022 inflation crisis, precious metals are among the best performing asset classes of the year. Looking into 2023, Saxo Bank predicts gold will climb to $3,000 an ounce. Before gold climbs even more, consider using current market levels to protect and grow your wealth with an increased allocation to gold.
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