Inflation has been a topic of discussion for some time now as the Fed seeks to normalize monetary policy. The Commerce Department reported today that the PCE (personal consumption expenditures price index) jumped to 2% year-over-year in March. That 2% is the Fed’s desired annual target for inflation.
Inflation is gaining further traction due to a tightening labor market as well as recent tax cuts that are providing economic stimulus. Just last week, the government reported that wages and salaries saw their biggest increase in 11 years in the first quarter.
Recent inflation data may cause increased scrutiny over this week’s FOMC meeting and non-farm payrolls report for April. Investors are not likely to be concerned with the headline jobs number, however, but may rather focus on wage growth. Wage growth is seen as a strong driver of inflation, and further upside pressure in wages could point to inflation exceeding the desired target.
The Fed is set to meet on Tuesday and Wednesday for its regular meeting on monetary policy. No action is expected from the central bank at this week’s meeting, however, investors will likely pay close attention to the central bank’s commentary. Markets have priced in another three rate hikes for this year, while the Fed has thus far seen only two more rate increases. Recent data suggests, however, that the Fed may have to get more aggressive with its path to higher rates. Any hawkish commentary from the Fed could set the stage for another rate hike in June and could potentially be market-moving.
Although the gold bears will argue that higher rates are bearish for gold, the opposite is true: A more aggressive approach to tightening could be very bullish for the metal, as it means that inflation is rearing its ugly head and possibly shooting beyond the Fed’s target of 2%.
The potential effects of increasing inflation cannot be understated. Higher borrowing costs can lead to economic recession, defaults and an overall decline in disposable income and purchasing power. It can eat away at net returns, while making each and every dollar saved worth less and less.
With accelerating inflation clearly on the horizon, now is the time to consider an allocation in an asset class that may provide a meaningful hedge against rising price pressures. With its higher price potential, significant history and lack of counterparty risk, the best choice for an inflationary environment may be physical gold.
Adding this key asset class to your portfolio has never been easier. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Advantage Gold representatives can walk you through the process step-by-step, and can even show you how simple it is to build an allocation in this important asset class using your IRA account.
Don’t wait for rising inflation to erode your net worth before taking action. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, Fed, fomc, gold, inflation, interest rate hike, labor market