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

Global Data: A New Scapegoat for the Federal Reserve

  by    1   0

This article was written by Nelson Gilliat, a millennial supporter of sound money and Austrian economics. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.

During March 16th’s FOMC meeting, the Fed announced that it would leave interest rates unchanged and scaled back its December projections for higher rates in 2016, 2017, and 2018. The Fed’s backtracking comes just three months after raising interest rates 25 basis points, its first hike since June 2006.

Marriner_S._Eccles_Federal_Reserve_Board_Building

While the Fed’s backtracking on higher interest rate projections was the big news of the meeting, another emerging trend also deserves attention – – the Fed’s backtracking from being US data dependent and toward being global data dependent.

Global factors are playing an increasingly larger role in the Fed’s decision to raise interest rates.

According to last week’s FOMC statement, “economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months” and warned that “global economic and financial developments continue to pose risks.”

In fact, the Fed’s concern over global factors’ influence on our sluggish economy leads it to directly list global factors as one of its criteria for raising interest rates:

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

Now, when deciding to raise rates, the Fed will not only consider US data such as inflation, employment, and financials, but also global data, such as “readings on international developments.” The Fed’s interest rate policy is now directly linked to global factors, a departure from previous Fed policy that was solely dependent on US data.

There are two likely reasons for the shift to global data. First, the addition of global factors gives the Fed another excuse not to raise rates. If the Fed were to follow US data alone, then it would be pressured to raise rates: unemployment is at 4.9%, 242,000 jobs were added in February, and inflation is picking up steam with core CPI at 2.3%.

As Michael Feroli, chief U.S. economist at JPMorgan Chase, states:

The current uncertainty over the global outlook and what it means for the U.S. economy is not easily susceptible to measurement. We think this language buys them time.”

Since neither the content nor the measurement of global factors was specified, this ambiguity gives the Fed leeway to claim anything — oil prices, downturns in China, Europe, etc. as pretenses for delaying, or even lowering interest rates.

The second reason for the shift to global data is that it provides the Fed with a scapegoat. Regardless of whether the Fed raises, lowers, or leaves interest rates unchanged, it can blame any bad outcomes on external factors outside of its control. Just look at what happened in December when the Fed’s 25 basis point rate hike and promise of future ones sent stocks tumbling. China and low oil prices, not the Fed, took the blame.

What does the Fed’s apparent uncertainty regarding the direction of higher interest rates mean for gold? Interest rate increases represent a return to economic normality and certainty. Conversely, periods of economic abnormality and uncertainty augur well for gold.

TaxFreeGold.Banner.1000x285

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

The Fed’s Fundamental Problem

Inflation was running rampant for months before the Federal Reserve launched its inflation fight. As you’ll recall, we were told over and over again that inflation was transitory. But now that the central bank is on the job, most people are confident Powell and Company can get rising prices back under control. Perhaps they shouldn’t […]

READ MORE →

How Fed Easy Money Helped Fuel the FTX Crypto Collapse

The collapse of the FTX crypto exchange has been in the news. As SchiffGold analyst Tony wrote, “FTX isn’t the canary in the coal mine (that was Celsius, or one of the other firms that crashed this year). FTX is the coal mine, and it just collapsed.”

READ MORE →

The Employment Picture Isn’t as Pretty as They Want You to Believe

There are plenty of signs that the economy is teetering on the brink as the Federal Reserve ratchets up interest rates. The air is coming out of the housing bubble, PMI has tanked, more Americans are living paycheck to paycheck, and debt is spiraling upward. Those claiming the economy remains strong have one peg to […]

READ MORE →

Gold Is the Solution for Financial Crises — Not the Cause

Most people have a sense of history that goes back about two weeks. This is especially true in the world of investing and finance. As a result, people have a hard time seeing the big picture. For instance, a lot of people think the current inflation crisis was only due to the Fed failing to […]

READ MORE →

Ron Paul: Wreck the Economy Win a Nobel Prize

Ben Bernanke was one of the architects of the inflation you’re suffering from today. He won a Nobel Prize for his efforts. Bernanke rolled out quantitative easing to rescue the economy in the wake of the 2008 financial crisis. At the time, he swore it was a temporary emergency measure and that the Fed would […]

READ MORE →

One thought on “Global Data: A New Scapegoat for the Federal Reserve

  1. Michael Enders says:

    Why does the Federal Reserve target a 2% inflation rate. Isn’t their main goal (among the ones added later) supposed to be to stabilize the value of the currency? My suspicion is that the 2% inflation goal is a decoy as an excuse to keep interest rates low for some other purpose, such as an excuse to keep interest rates low to slow the increase of the cost of servicing the government’s massive debt to postpone the default that must come sooner or later. They are just trying to make it later – and on someone else’s watch. Confirm? Deny? Elaborate?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Call Now