Fed Policies Bullish for Gold

17 Sep

Fed Policies Bullish for Gold

Nobody ever said economics is funny, but this was enough to make a dog laugh!

Because they can’t be serious, right?  

Right?

The Federal Reserve released a policy statement and economic projections Wednesday (9/16).

The Wall Street Journal captured the absurdity of it all in a headline: “Fed Signals Interest Rates to Stay Near Zero Through ​2023.”

Through 2023?  That’s more than three years.  

The Fed can’t project GDP right for the next quarter, and they’re telling us what they’ll do with interest rates for the next three years?

Are there people who believe this stuff?

During the last stagflation period, the Fed changed rates constantly—twenty-two times in 1973 alone, twenty-three times in 1978.  Who knows what kind of volatility awaits us in what we called in an earlier commentary “The New Stagflation Decade”?

The latest announcement is part of the Fed’s “forward guidance” policy, to goose the markets by telling them what it will be doing down the road.

WSJ:

“The latest Fed projections show that even by the end of 2023, most officials believe inflation will only have begun returning to 2% and that unemployment will begin nearing levels that prevailed before the crisis struck in March.”

This is its first meeting since the Fed raised its inflation targets.  In this case the Fed is doubling down on its commitment to a future of inflation.  It consists of:

  1. The higher inflation targets that it announced last month, and;
  2. Now the promise of this higher inflation for a longer period of time.

So that’s the monetary side of affairs.  What about fiscal policy?

Treasury Secretary Mnuchin’s piped up on CNBC a few days earlier advising the Fed and Congress that “now is not the time to worry about shrinking the deficit and the Federal Reserve’s balance sheet.”

Believe us, almost nobody in Washington on either side of the aisle is interested in “shrinking the deficit.”  

So, we are watching the marriage of extreme monetary and extreme fiscal policy; of prolonged negative real interest rates, and skyrocketing government debt.

Now, if you wanted to engineer higher gold and silver prices, much higher, you would have the Fed provide artificially low interest rates for a prolonged period and have Washington explode the debt.

I guess you see where this is going, right?

jim-sign