Economic Conditions, Market Performance Worsen After Fed Rate Hike
Precious metals markets are trying to tough this week despite another large rate hike by the Federal Reserve.
On Wednesday, the Fed raised its benchmark interest rate by three quarters as expected. Fed chairman Jerome Powell vowed to bring inflation down and restore price stability.
Jerome Powell: My colleagues and I are strongly committed to bringing inflation back down to our 2% goal. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%. The longer the current bout of high inflation continues the greater the chance that expectations of higher inflation will become entrenched.
After pursuing ultra-loose monetary policy that fomented price instability and massive inflation in the first place, Powell seems to now want to model himself after former Fed chairman Paul Volcker. In the early 1980s, Volcker jacked up interest rates to the highest on record to finally curtail the inflation surge from the late 1970s.
Back then, though, U.S. finances were comparatively healthy. Debt levels were manageable. And financial markets hadn’t been artificially pumped up by zero interest rate policy and Quantitative Easing.
Powell has only just begun to reduce the size of the Fed’s massive balance sheet. In response, Wall Street is reeling. Housing appears to be tipping over. And the economy is slumping into recession.
Powell suggested in remarks following the rate hike decision that getting out in front of inflation is more important than trying to engineer a soft landing for the economy. Effectively, he has given up on preventing a recession.