Only a few days after President-elect Trump’s comments talking down the dollar, Fed Chairwoman Janet Yellen has sent the greenback rebounding today with strong hints of multiple interest rate hikes “a few times a year” for the next few years.
Yellen and the FOMC raised the federal funds rate by a quarter point at December’s meeting where the Fed Chair said rising employment levels and edging inflation have lead to “considerable progress” for the economy. In response, gold prices fell from $1,161.84 to $1,141.77 as investors made moves into the greenback. At that time, Yellen had indicated that the committee believed a series of rate increases would be appropriate if economic trends stayed within acceptable ranges.
Peter Schiff appeared on MSNBC’S “Up with Chris Hayes” with a panel of other experts and pundits to debate the Fed’s role in the housing bubble, Republican views on the economy, and the effects of inflation on prices.
Peter had a spirited exchanged with Karl Smith, Economics Professor from the University of Carolina, on the causes of the housing crisis. Smith took the typical stance of blaming complicated investment instruments for creating confusion in the market. Peter countered with the primary cause stemming from a combination of artificially low interest rates and Fannie and Freddie’s role in making cheap mortgages available to too many people who couldn’t afford them.
Fed Up Friday: Gold Still Strong Investment, Regardless of FOMC Direction
This week marked the full release of the 2011 FOMC transcripts, revealing troubling details from the meeting notes. As the Federal Reserve looks to see a big shakeup in 2017, gold is looking at a win-win situation. Learn more in this week’s Fed Up Friday.
Three Elements that will Stir Up the Fed in 2017
Trump’s administration represents a changing of the guard in Washington, and the Fed is not immune. Out of everything expected, a few key changes will really shake things up for the FOMC. First, in 2017 we’ll be getting 3 new voting members. Their records seem to lean more dovish than the counterparts they’ll be replacing, which may influence the number of rate hikes for 2017.
Second, the Fed’s plan shows that they don’t feel the need for fiscal policy to achieve their monetary goals. From their perspective, the nation has reached peak employment – (regardless of how many are actually underemployed) – and fewer barriers are in their way to increase inflation.
Finally, Trump will be selecting new members to fill two vacant slots on the Fed Reserve Board. That and Yellen’s term expiring in early 2018 should be the big moves for building a new monetary regime.
While many small business owners are celebrating Barak Obama’s exit as Commander-In-Chief, Peter Schiff is skeptical about Trump repealing enough Federal regulations to help return us to a free market. Small business owners face many more problems finding financing and handling business regulations than corporations.
Donald Trump’s press conference gave gold a rollercoaster ride on Wednesday as prices hit a 6-week low ahead of the president-elect’s speech, only to rally back to its highest point in 7 weeks. Spot gold moved from $1,176.94 to $1,198.40, the highest since late November.
Investors made a move into the yellow metal after the dollar took a tumble, according to Reuters. Stocks saw a negative move as well. Pharmaceutical stocks lead an overall decline in the market after Trump made comments about drug companies “getting away with murder” by price gouging their customers.
Dan Kurz is a CFA with over two decades experience working in Zurich, Switzerland as a thematic strategist for Credit Suisse CIO Office. Dan’s site, DK Analytics, offers deep and broad analysis at the macro and micro level.
Gold per troy ounce (toz or oz) in $ terms has slumped by a whopping 11% since the November 8, 2016 election. The dollar’s trade-weighted value, meanwhile, has risen by 4% over the same period, while the value of the 10-year Treasury has fallen by a considerable 6% and the S&P 500 has rallied by 6%. What happened? In a nutshell, perception changed. Traders bet on more fiscal stimulus-based growth, lower corporate taxes, higher federal deficits, higher nominal interest rates, and higher inflation, so stocks went up, bonds went down, and the buck went up.
The prices of gold and silver are always moving, influenced by factors such as current events, market speculation, currency fluctuations, and supply and demand. In 2016, there were several events that influenced the highs and lows of the gold and silver market. For investors, staying on top of these fluctuating prices is crucial to financial success. Here are some of the events that affected the market the most:
Economist Jim Rickards appeared on CNBC’s “Squawk Box” outlining his 2017 predictions for rate hikes, Trump stimulus, and the coming US recession. Rickards believes the markets are unwittingly pricing in a stimulus plan that will never materialize.
“Trump wants to cut taxes. Steve Bannon is talking to his advisors about a trillion dollars of infrastructure spending, cutting regulations. All of these things are viewed to be highly stimulative. That’s why the market is going up. Pharmaceuticals are going up on the repeal of Obamacare, banks going up on the repeal of Dodd-Frank.”
The markets and the Fed have the perception that tax cuts and spending will continue despite the realities of a fiscally conservative congress, a $20 trillion of debt and a 104% debt-to-GDP ratio.
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In her rate hike announcement last week, Janet Yellen said the Fed was so confident in the health of the US economy that it was raising the Federal Funds rate by a paltry quarter point. Investors are on board, with a wave of irrational exuberance sending the Dow closer to its 20,000-point milestone. However, the Fed’s decision suggests the need for a strict comparison with its statements last December: a time when a similar expression of economic confidence would prove to substantially miss the mark for rate hike expectations and GDP growth.
In a special episode of the Schiff Report, Peter Schiff shows how the Fed’s economic optimism is a ploy to maintain credibility with the markets and to cover up the fact that significant rate increases are impossible.