Will the Fed Raise Rates This Week?

Once again, the financial world will wait with bated breath to find out what the Federal Open Market Committee does this week. The FOMC, the Federal Reserve’s monetary policy decision-making apparatus, is once again debating whether or not to continue to raise the target federal funds rate, which currently sits at 5.25-5.50%.

It’s a shame that business activity revolves around these decisions, and that every six weeks or so everything hangs on what the Fed decides to do. But that’s the result of the unprecedented monetary intervention the Fed has undertaken over the past 15 years.

There’s not really a right or wrong decision when it comes to interest rates, as any decision the Fed makes will distort markets. But one could argue that some decisions may be less bad than others. Which one will the Fed choose?

The Argument Against Raising Rates

Surprisingly, much of the mainstream financial media seems to think the Fed should hold rates steady. Many believe that the Fed is making progress against inflation, and that there is no need to further raise rates to combat inflation.

They point to the fact that inflation is lower this year, even though it has been climbing for the past two months. And they discount rising inflation rates by blaming it on rising food or energy costs, which they presume will stop increasing in the near future.

Some also argue against raising rates on the basis that the economy is showing signs of weakness and is on the road to recession. If that’s the case, then further rate hikes will slow the economy even further and hasten the onset of recession.

But how much of the argument against raising rates is wishful thinking? No one likes having to pay more interest, and there’s no doubt that higher interest rates are impacting the real estate market particularly strongly. But can the Fed really afford to pause its interest rate hikes right now?

The Argument For Raising Rates

The strongest argument in favor of raising interest rates is the fact that inflation has rebounded, up to 3.7% year on year from 3% two months ago. That’s a worrying sign that the Fed may not be doing enough to keep inflation low.

The Fed’s official inflation target is 2%, and the current inflation rate is nearly double that and rising. Perhaps even more concerning is the month on month inflation rate, which at 0.6% equates to a 7.4% annualized rate. If the Fed doesn’t raise rates this month, it risks getting behind the curve if inflation rises again next month.

Lest you think that’s unlikely, take a look at the M2 money supply. Rising prices are the result of a rising money supply, and after months of falling, M2 has bounced back, despite the fact that the Fed has continued to shrink the size of its balance sheet.

So either the Fed has lost control of its ability to impact the money supply, or what it is doing is no longer as effective as it was, and the Fed will have to tighten monetary policy even more in order to get the same effects as it did before. And if the Fed doesn’t get control of things now, it may end up having to play catch-up in the future.

Remember how we got here in the first place? The Fed first tried to deny that the massive expansion of its balance sheet would result in inflation. Then it tried to say that inflation would only be transitory. Then, once inflation really became problematic, the Fed belatedly tried to tackle the problem.

That resulted in the Fed having to raise interest rates higher and faster than it normally would have felt comfortable doing. Because the Fed only acknowledged the problem belatedly, it was forced to catch up much quicker.

What happens if the Fed does the same thing now? What if inflation pushes to over 4% in the next release? And what if it keeps rising even after another rate hike?

The Fed is once again playing with fire here. Fed Chairman Jay Powell seemed to make it clear at his Jackson Hole speech that the Fed would prioritize fighting inflation over all other concerns. Now is the time for him to put his money where his mouth is. If the Fed doesn’t raise rates this week, not only does it risk falling behind in the inflation fight, but it also risks destroying the credibility of Powell and other Fed decision makers.

Gold vs. Inflation and Recession

The Fed is facing the same twin dangers that every other American is: inflation and recession. And if the two combine to create stagflation, that would be even worse. But there are ways to protect yourself against some of the worst effects of inflation and recession.

Many Americans have already taken advantage of higher interest rates to move their money into high yielding money market accounts, helping to protect their cash holdings from being eaten up by inflation. But if the Fed cuts interest rates in the future to forestall a recession, those rates could deteriorate.

There are other ways to try to protect against inflation, such as by owning gold. Gold has a reputation for acting as a hedge against inflation in the long run, and many Americans have already started trying to protect their wealth with gold.

But gold also has a reputation for being a safe haven asset during times of economic uncertainty or financial crisis. During the 1970s stagflation, for instance, gold’s average annualized rate of growth was over 30%, far higher than even the double digit inflation of the time. And during the 2008 financial crisis, gold gained 25% during the same period that markets lost over 50% (October 2007 to March 2009).

Many Americans are hoping that gold repeats that kind of performance during the next crisis or recession, and that’s why they’re buying gold today. Whether it’s through direct cash purchases or through a gold IRA, Goldco has the gold products you need to fulfill your goal of owning gold.

With over $2 billion in precious metals placements and thousands of satisfied customers, Goldco works hard to provide exceptional customer service and high quality gold and silver products. If you want to learn more about how gold and precious metals can help you protect yourself against inflation and recession, call Goldco today.