On March 22, 2023, the Federal Reserve enacted another quarter-percentage-point interest rate hike but indicated that hikes would soon stop. The end of this historic rate hike cycle may have major implications for the economy.
The latest Federal Reserve interest rate cycle took rates to pre–2008 Financial Crisis highs.
After their ninth increase since March 2022, interest rates have risen to a range of 4.75–5%, a range not seen since 2007. The Federal Reserve’s stated goal during this period of expansion is to lower inflation. In a press conference, Federal Reserve chairman Jerome Powell said, “We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so—that [we] will bring inflation down to 2% over time. It is important that we sustain that confidence with our actions, as well as our words.”
Projections by the Federal Reserve indicate one more coming interest rate hike in the current cycle.
Some analysts say these hikes have increased the chances of economic volatility.
Ellen Zentner, chief U.S. economist at Morgan Stanley, says that raising interest rates has increased risks to the economy. In a March 2023 note to clients, Zentner wrote, “We were already expecting a meaningful slowdown in growth and job gains over the coming months, and the prospect of substantial tightening in credit conditions raises the risk that the soft landing we project[ed] [will] turn into a harder one.”
Goldman Sachs economist David Mericle said the high interest rates “raised the odds of a more serious downside scenario,” according to a March 23, 2023, article by CNBC.
Billionaire Bill Ackman says the Federal Reserve’s interest rate hikes will make the economy a “train wreck.” Noting the impact that interest rates could have on lenders and depositors in the banking system in light of the recent banking crisis, Ackman wrote, “Trust and confidence are earned over many years but can be wiped out in a few days. I fear we are heading for another a train wreck. Hopefully, our regulators will get this right,” in a tweet published March 22, 2023.
Federal Reserve policies may contribute to a spike in gold prices.
“Banking-sector turmoil and worries about the economy have gold prices hitting $2,000 a troy ounce for the first time in a year,” wrote The Wall Street Journal on March 20, 2023. The article later continued, “several analysts… said the banking tumult portends tightening economic conditions and a pause in the Federal Reserve’s aggressive interest-rate increase campaign, which could drive further gains.”
Fox Business wrote on March 21, 2023, that “the price of gold and silver continues to outperform on Wall Street while maintaining an upward trend towards historic highs,” and that a “gold rush [is] still on for 2023.”
On March 24, 2023, Financial Times wrote that “Trader quip that one of the few things to rally during bear periods is volatility. Add gold to the list.”
Gold has performed strongly during this cycle and outperformed stocks over the last six months, according to Fox Business. And while high interest rates may lead to a hampered economic growth, analysts are also noting that gold prices may spike higher in the future, providing a level of protection or growth opportunities for consumer portfolios.
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