Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Since When Is a Little Rate Hike Years From Now Hawkish?

  by    0   0

Markets reacted strongly to what many considered “hawkish” messaging coming out of the June Federal Reserve meeting. But is the Fed really taking a “hawkish” position?

Peter Schiff said the Fed was engaging in a “no stick” monetary policy. And in his Friday Gold Wrap podcast, Mike Maharrey argued the Fed was a dove in hawks clothing, arguing we should look at the Fed’s actions, not the messaging.

Economist Doug Frenc asks a crucial question. Even if you take the Fed’s talk at face value, is a half-point interest rate hike in two years really “hawkish?”

Since when is forecasting a couple rate bumps two years from now considered hawkish to the point of making the dollar pop and gold flop?”

The following article by Doug French was originally published at the Mises Wire. The opinions expressed are the authors and don’t necessarily reflect those of Peter Schiff or SchiffGold.

The Fed announced the reportedly hawkish news that the central bank may raise rates, not this year, not next year, but by fifty basis points sometime in 2023. This tapering would slow the Fed’s buying of $120 billion of debt securities a month with money created from the ether to some lesser amount.

People forget the central bank “kept its benchmark rate on hold for a 10th straight meeting after sweeping into emergency action amid the coronavirus pandemic in March of last year with a full percentage-point cut.” Yet again emergency government action has become permanent.

This news sent the dollar screaming upward, with the DXY jumping from 90.54 to 92.32 at week’s end. The price of gold was, of course, bludgeoned. The yellow metal dropped 6.5 percent over the next five days. The ten-year Treasury bond finished the week at a paltry 1.44 percent. Meanwhile, financial basket case Greece saw its ten-year rate finish at seventy-nine basis points.

Making no news was Lyn Alden’s tweet that the Federal Reserve’s balance sheet crossed $8 trillion in assets. Fed watcher Alden followed this with the news, “Reverse repos jumped $235 billion today to $755 billion.”

Chairman Powell didn’t articulate what the Fed will do; the financial press deciphered it this way, per Bloomberg: “The Federal Reserve’s so-called dot plot, which the U.S. central bank uses to signal its outlook for the path of interest rates, shows that officials expect no change in policy this year, while leaning toward two rate increases by the end of 2023, based on median estimates.”

Does this make sense? Free markets at work? Logical price discovery? After all, as Murray Rothbard explained, “Since the investment is always in anticipation of later sale, the investors are also engaged in entrepreneurship, in enterprise.”

Since when is forecasting a couple of rate bumps two years from now considered hawkish to the point of making the dollar pop and gold flop?

Since it’s a Keynesian world, rather than an Austrian one, Lord Keynes reminds us, “The market can stay irrational longer than you can stay solvent.”

Another point of view is “I’m looking at the gold market right now and I think this could prove to be a good time to buy,” George Milling-Stanley, chief gold strategist at State Street Global Advisors, said. “I see a lot of panic selling and I don’t think that can last much longer. Basically, the markets saw higher inflation and higher interest rates, but they completely ignored the fact that the hikes are at least two years away. A lot can happen in two years.”

Milling-Stanley has a long enough memory to make the point, “the last time that the Fed was actually in a rate tightening mode was between December of 2015 and December of 2018, so gold should have gone down. But it went from $1,050 in December of 2015 to $1,270 by December of 2018. So gold went up 21% in those three years, even though rates were raised nine times.”

Keynes pointed out, “For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs—a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.

While Keynes viewed speculation as a game, Rothbard viewed it more seriously. “Entrepreneurship is also the dominant characteristic of buyers and sellers who act speculatively, who specialize in anticipating higher or lower prices in the future. Their entire action consists in attempts to anticipate future market prices, and their success depends on how accurate or erroneous their forecasts are.”

Nobody can say for sure the Fed will taper or increase rates. And just because the Fed’s inflation has forced us all to learn to pump our own gas and scan our groceries, not many have the entrepreneurial savvy to invest properly to fund retirement.

With the eight hundred–pound Fed in the markets, finding a chair and forecasting accurately may be next to impossible.

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

India Gold Imports Hit 5-Month High

India’s gold imports hit a 5-month high of 121 tons in August, a further sign of recovery in the world’s second-largest gold market.

READ MORE →

Peter Schiff: Biden’s Rent Gambit

The “transitory” inflation swamping the country has stubbornly persisted into July.  Producer prices posted a second straight 1% month-over-month increase, which brought the full-year number to a record 7.8%. Twelve-month US export prices rose 17.2%, and nearly 22% if the rate of the first seven months of 2021 were annualized. (I find it telling that […]

READ MORE →

As COVID Wave Eases Indian Gold Market Recovery Looks to Be Back on Track

After being put on pause due to a coronavirus surge, the recovery of India’s gold market appears to be back on track.

READ MORE →

A Whole Lot of Talk, No Action at the Latest Fed Meeting

The Federal Reserve wrapped up its July meeting on Wednesday. Once again, there was a whole lot of talk and no action. The Fed kept interest rates at zero. The Fed kept its quantitative easing program rolling. The Fed didn’t do anything. But the Fed had plenty to say.

READ MORE →

Another Fed Balance Sheet Record; Where’s the Exit Door?

For months, the markets have anticipated the Fed tightening monetary policy in order to take on rising inflation. At the June FOMC meeting, the central bank even hinted that it might start raising interest rates in 2023 instead of 2024, and the central bankers apparently talked about talking about tapering their quantitative easing bond-buying program. […]

READ MORE →

Comments are closed.

Call Now