Fed Up Friday: FOMC Revisions Likely, Regardless of Election Result

With the election looming, the Fed met all expectations of delaying a rate hike in November. Whether or not a hike happens in December, the benefit to owning gold is that “real” interest rates could stay low or negative regardless of the outcome. Learn about all that and more in this week’s Fed Up Friday.

Regardless of Election, Fed Should Expect Big League Changes

With Tuesday’s contentious presidential election looming, the Fed may want to prepare for more changes. U.S. News analyzed both Clinton and Trump’s plans for fixing the Fed once they become President.

Unsurprisingly, Clinton’s progressive platform strengthens the Fed’s control of the financial markets. Clinton has said she would go “well beyond Dodd-Frank” in an effort to reform the central bank. Trump, on the other hand would likely do away with heavy regulation, and has also stated publicly that it would be “important to audit” the Fed if elected. Clinton is against an audit.

Inflation on the Rise, Could Change Slow Hike Policy

According to the Fed’s preferred inflation measurement, the personal consumption expenditures index (PCE) showed inflation finally beginning to climb for the first time since Q1 of 2016. Even when inflation rises, the Fed is unlikely to act swiftly to combat it with more rate hikes. Their hands will be tied, unable to take such drastic action: medical costs are due to skyrocket in 2017 because of Obamacare, while housing and rent costs are already on the upward swing.

As inflation continues to rise, expect the Fed to keep their slow rate hike pace into 2017. Those two factors look to create a very healthy environment for gold.

Low Rates and Rising Inflation are a Good Environment for Gold

Even if interest rates go up in December, “real” rates could stay low or negative regardless of the outcome. The situation makes for a good opportunity to own or buy gold. After a nominal increase from the Fed, real world interest rates are likely to stay close to negative, according to the WSJ. With inflation on the rise as well, 2017 could still support a healthy economy for gold.

Shree Kargutkar for Sprott Asset Management explains such an environment will lead to “low, possibly negative real rates and create an environment which benefits gold.”

Bank of Japan’s Aggressive Stimulus is Unable to Spur Inflation

The Bank of Japan’s negative interest rates are failing to stimulate growth in Japan, and the central bank is finding a solution elusive. After a quarterly review of its financial forecasts, the BOJ lowered their expectations for inflation from 1.7% to 1.5% by March 2018. Across the Pacific consumer prices have fallen for seven straight months, and household spending continues to stagnate.

A recent Reuters’ survey of Japanese companies shows there’s little faith in the BOJ’s aggressive stimulus plan, with many businesses noting negative effects heavily outweighing the positives.

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