On Wednesday afternoon, the Federal Reserve hiked the Fed Funds Rate by another 25 basis points, bringing the rate to 1.50-1.75%. This move from the central bank was widely expected, and investors are likely to be far more focused on the commentary from the central bank after the announcement.
The Fed forecast at least two more hikes this year, and also upgraded its outlook on the economy. The combination of tax cuts and government spending are cited as potential catalysts for higher inflation and a more aggressive approach to tightening. The central bank also slightly raised its long-term “neutral” rate-the level at which rates do not boost or slow economic activity. This could potentially be indicative of a more prolonged and gradual approach to higher rates in the current cycle.
The central bank sees inflation moving higher in the coming months before stabilizing. Some Fed officials, however, appeared concerned that inflation could not only climb to the target level but could potentially go beyond it.
Although none of the commentary came as much of a surprise, it does contain some key elements. The concern over accelerating inflation seems to be justified, but the Fed recognizes the tightrope it must walk in order to not hit the economic brakes too hard. This could potentially lead to one of two scenarios:
One is that the Fed continues with a very gradual approach to rates, and potentially falls behind the inflation curve.
Two is that the Fed does become far more aggressive, perhaps implementing a fourth hike or even hiking rates by 50 basis points rather than 25 in order to keep inflation at bay.
Either case could potentially be considered highly bullish for gold.
The current market environment may simply be unsustainable. If the Fed takes a low and slow approach to rates, inflation could potentially rum rampant, eroding purchasing power and the dollar in the process.
If the Fed looks to tighten more aggressively, stock investors are likely to begin exiting the market in droves, potentially leading to a significant sell off or even a bear market.
Either way, gold or other hard assets may potentially stand to benefit significantly.
Now may be the ideal time to consider an allocation in physical gold. This key asset class can potentially offer both a meaningful hedge against inflation, while also offering significant upside potential once the stock bull market comes to an end.
Adding this key asset class to your holdings has never been easier. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how to incorporate this asset class using your IRA account.
Don’t wait for increasing inflation to take a bite out of your purchasing power, or for the next major stock collapse to erase billions in wealth along with it. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, cycle, Fed, gold, inflation, interest rate hike, tightening