Fed's message this week: Higher rates, lower economic growth and higher unemployment. For the third consecutive meeting, the Fed raised interest rates by 75 basis point. The statement also stated that the Fed anticipates additional increases.
Summary of Economic Projections (SEP), showed that the median projection was for an additional 1.25% increase by Year End.
Additional 75 basis points will be added at the November 1-2 and 50 at the December 13-14 meetings. Projections show that there will be a 25-basis point increase in next year's rate before the Fed lowers rates in 2024.
Implied Fed Funds Target Rate Chart
Markets are under the control of central banks already
However, the statement acknowledged that Russia's war on Ukraine has caused immense economic and human suffering.
Inflation is rising due to the war and other related events. This has a negative impact on global economic activity. The Committee is very attentive to inflation risks.
The problem is that central banks don't have any control over supply issues. Their only recourse is to reduce demand to satisfy the limited supply.
The approach to raising interest rates is not aimed at specific sectors, but rather is broad-based and applies across the economy.
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Financial markets are very responsive to interest rate increases and often look ahead. Although equity markets fall before a rate rise, it can take 6-12 months for the economy to feel the full impact of interest rate increases.
Statistics can be misleading. The Fed measures the labor market using the U.S. unemployment rate as one of its main indicators.
To be considered unemployed, a person must not have looked for work in the past four weeks. They are not considered to be part of the labour force if they do not.
Also, the way that the unemployment rate is calculated could make it artificially low.
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Instead of being considered unemployed, people are "dropped out" of the labour force figures.
The percentage of people in the labor force has not increased to pre-covid levels, i.e. There are fewer people working in the labour market.
As a percentage of the US population, the number of employed has not increased to pre-covid levels. It is possible that the FED thinks that employment markets are more robust than they really are due to misleading statistics.
The FED is aiming to raise interest rates until there are no more labour market problems, so it could be that they are raising rates on the basis of bad statistics.
US Labour Force Chart
The Blame Game continues…
Individuals can give many reasons why they aren't returning to the labor market. Hospitality and health care are the most popular job categories.
Many healthcare workers are becoming burnt out and have moved to other sectors, or chosen to continue their education, stay at home, or retire early rather than returning to the same sector.
High burnout among healthcare workers is reflected in the average salary for paramedics in New York City of US$48,000-65,000. The average monthly rent in New York City is about $4,000.
This is why there are so many job openings in this sector. Inequality in wage has been an issue for many years in the United States. Forbes reports that the average S&P 500 CEO earns 299 times as much as the average employee.
This is compared to the average CEO earning 50x more than the average employee back in 1950. The current post-covid environment is ideal for American employees to demand higher wages.
The Fed is trying to reduce demand by encouraging households with higher incomes and businesses to slow down their spending, while keeping lower income households from falling further into poverty.
Powell quickly points out that inflation is most detrimental to households with lower incomes, but higher interest rates can also have a negative impact on households with lower incomes. High unemployment rates are more detrimental to households with lower incomes.
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SEP projections show that the Fed expects economic growth to be lower than its June Projection (table ci-dessous), with only 0.2 and 1.2% growth next years.
A higher unemployment rate of 4.4% is projected to mean more than 1,000,000 additional Americans are unemployed. Yet, inflation remains well above the Fed’s 2% target.
There are strong parallels between high inflation and rising unemployment in the 1980s. We are reminded of Jimmy Carter when we consider the U.S. Administration's inability to blame anyone but themselves.
It was too late for the Fed to recognize inflation, to raise rates and to begin quantitative tightening (shrinking their balance sheet). Now, they will be too late to realize the extent to which higher interest rates are slowing down economic growth.
If the negative U.S. growth of two quarters in the first half of this year and the terrible earnings announcement by FedEx are any indications, the U.S. as well as the global slowdown are upon us!
If economic growth slows, politicians will blame the central banks.
From the Trading Desk
Yesterday, the US interest rate rose by 75bp.
The afternoon session saw equity markets move back and forth, first falling then regaining their flat state on the day. After that, the market closed down as we received a more hawkish Fed.
The Dow Jones closed at 30183, 1.7% lower than the S&P's close.
The equity markets appear to be close to recouping all of their gains from June's summer lows.
With the Euro at a 20-year high, the dollar continues to strengthen.
After a 26% decline in USD this year, the Bank of Japan has just intervened to support the Yen.
This is the first intervention by the BOJ in FX markets since 1998.
Due to the strength of the USD, and higher yields from the Treasury, Gold has performed reasonably well.
Gold is up in GBP and Euro terms. In Euro terms, close to 6%; in GBP, 10%.
We agree that USD is lower, but if you remove the dollar strength component, gold in USD terms has fallen 5% over the year. Compare this with leading equity indices, which have dropped more than 20%.
Gold Britannia available for immediate settlement – We have limited quantities of Gold Brittania's for storage or delivery at Spot plus 9.5%.
Gold Brittania's on allocation – The Royal Mint has stopped producing new British silver and gold coins due to Queen Elizabeth II's passing. You can still place orders on a back order/allocation basis.
We anticipate that the order will settle in three months.
Spot plus 6.5% is the premium for Gold Brittania's backorder/allocation.
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GOLD PRICES (USD. GBP. & EUR – AM/ PM LBMA Fix).
21-09-2022 1674.45 1671.75 1476.03 1474.65 1687.68 1687.13
20-09-2022 1667.90 1664.15 1458.75 1460.29 1665.56 1667.48
16-09-2022 1664.30 1664.65 1461.75 1460.06 1666.96 1668.65
15-09-2022 1689.00 1689.10 1467.23 1467.32 1690.01 1689.10
14-09-2022 1703.80 1703.90 1473.79 1473.70 1702.78 1706.97
13-09-2022 1727.05 1704.85 1474.38 1474.35 1699.94 1699.56
12-09-2022 1726.50 1726.40 1478.23 1477.28 1698.01 1705.51
09-09-2022 1726.95 1713.40 1485.87 1479.52 1711.58 1705.18
08-09-2022 1720.25 1709.35 1498.17 1488.33 1720.42 1716.19
07-09-2022 1705.05 1702.65 1486.63 1492.54 1722.10 1719.34
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GoldCore News's post Brace Yourself for the Impact originally appeared on GoldCore News.
Frequently Asked Questions
What are some of the benefits of a gold IRA
It is best to put your retirement money in an Individual Retirement Account (IRA). It will be tax-deferred up until the time you withdraw it. You have total control over how much each year you take out. And there are many different types of IRAs. Some are better suited to college savings. Some are better suited for investors who want higher returns. Roth IRAs are a way for individuals to make contributions after the age of 59 1/2, and then pay taxes on any earnings upon retirement. But once they start withdrawing funds, those earnings aren't taxed again. So if you're planning to retire early, this type of account may make sense.
An IRA with a gold status is like any other IRA because you can put money into different asset classes. Unlike a regular IRA where you pay taxes on gains, a gold IRA doesn't require you to worry about taxation while you wait to get them. People who prefer to save their money and invest it instead of spending it are well-suited for gold IRAs.
Another advantage to owning gold via an IRA is the ease of automatic withdraws. This means that you don't need to worry about making monthly deposits. Direct debits could be set up to ensure you don't miss a single payment.
Finally, the gold investment is among the most reliable. Because it's not tied to any particular country, its value tends to remain steady. Even in times of economic turmoil gold prices tend to remain stable. This makes it a great investment option to protect your savings from inflation.
What are the pros and cons of a gold IRA?
An Individual Retirement account (IRA) is a better option than regular savings accounts in that interest earned is exempted from tax. An IRA is a great option for those who want to save money, but don't want tax on any interest earned. But, this type of investment comes with its own set of disadvantages.
For example, if you withdraw too much from your IRA once, you could lose all your accumulated funds. Also, the IRS may not allow you to make withdrawals from your IRA until you're 59 1/2 years old. If you do decide to withdraw funds from your IRA, you'll likely need to pay a penalty fee.
Another problem is the cost of managing your IRA. Many banks charge between 0.5%-2.0% per year. Others charge management fees that range from $10 to $50 per month.
Insurance is necessary if you wish to keep your money safe from the banks. A majority of insurance companies require that you possess a minimum amount gold to be eligible for a claim. Insurance that covers losses upto $500,000.
If you are considering a Gold IRA, you need to first decide how much of it you would like to use. Some providers limit how many ounces you can keep. Some providers allow you to choose your weight.
It is also up to you to decide whether you want to purchase physical gold or futures. Gold futures contracts are more expensive than physical gold. Futures contracts allow you to buy gold with more flexibility. They let you set up a contract that has a specific expiration.
You also need to decide the type and level of insurance coverage you want. The standard policy does not include theft protection or loss caused by fire, flood, earthquake. The policy does not cover natural disasters. You may consider adding additional coverage if you live in an area at high risk.
Additional to your insurance, you will need to consider how much it costs to store your gold. Storage costs are not covered by insurance. Banks charge between $25 and $40 per month for safekeeping.
If you decide to open a gold IRA, you must first contact a qualified custodian. A custodian keeps track of your investments and ensures that you comply with federal regulations. Custodians aren't allowed to sell your assets. Instead, they must maintain them for as long a time as you request.
After you have decided on the type of IRA that best suits you, you will need to complete paperwork detailing your goals. You should also include information about your desired investments, such as stocks or bonds, mutual funds, real estate, and mutual funds. Your monthly investment goal should be stated.
After completing the forms, send them along with a check or a small deposit to your chosen provider. The company will review your application and send you a confirmation letter.
When opening a gold IRA, you should consider using a financial planner. Financial planners are experts in investing and will help you decide which type of IRA works best for your situation. They can help reduce your expenses by helping you find cheaper alternatives to buying insurance.
What Is a Precious Metal IRA?
An IRA with precious metals allows you to diversify retirement savings into gold and silver, palladium, rhodiums, iridiums, osmium, or other rare metals. These are “precious metals” because they are hard to find, and therefore very valuable. These are good investments for your cash and will help you protect yourself from economic instability and inflation.
Bullion can be bought via various channels, such as online retailers, large coin dealers and grocery stores.
With a precious metal IRA, you invest in bullion directly rather than purchasing shares of stock. This allows you to receive dividends every year.
Unlike regular IRAs, precious metal IRAs don't require paperwork or annual fees. Instead, your gains are subject to a small tax. Plus, you get free access to your funds whenever you want.
- This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- Instead, the economy improved, stocks rebounded, and gold plunged, losing 28 percent of its value in 2013. (aarp.org)
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- Gold IRA – Add Sparkle to Your Retirement Nest Egg
- Understanding China's Evergrande Crisis – Forbes Advisor
- Saddam Hussein’s InvasionHelped Uncage a Bear In 1989 – WSJ
- Do you want to keep your IRA gold at home? It's not legal – WSJ
Gold IRAs: A Growing Trend
The gold IRA trend is growing as investors seek ways to diversify their portfolios while protecting against inflation and other risks.
The gold IRA allows investors to purchase physical gold bars and bullion. It is tax-free and can be used by investors who aren't concerned about stocks and bond.
An investor can use a gold IRA to manage their assets and not worry about market volatility. The gold IRA can be used to protect against inflation or other potential problems.
Investors also get the unique benefits of owning physical Gold, including its durability, portability, flexibility, and divisibility.
The gold IRA also offers many other benefits, such as the ability to quickly transfer the ownership of the gold to heirs, and the fact the IRS doesn't consider gold a currency.
Investors looking for financial security are increasingly turning to the gold IRA.
By: Stephen Flood
Title: Brace Yourself for the Impact
Sourced From: news.goldcore.com/brace-yourself-for-the-feds-impact/
Published Date: Thu, 22 Sep 2022 11:39:24 +0000