At the conclusion of the Federal Reserve’s two day meeting on Wednesday afternoon, the central bank kept rates at current levels in a move that was expected. The central bank did, however, take note of rising prices and said it now expects inflation to run near its 2% target “over the medium term.”
The central bank’s commentary will be very closely scrutinized by investors, and at first glance appears to contain a more hawkish tone. The Fed could in fact be setting the stage to raise rates again in June, and could end up hiking rates four times this year instead of three.
The central bank will face a difficult decision, however, as it tries to contain inflation while also allowing economic expansion to continue. The central bank must try to effectively walk a tightrope: Tighten too aggressively and stocks and risk assets could tank. Wait too long to tighten and fall behind the inflation curve.
In addition, further tightening may not only give stock investors reason to exit, but could also potentially act as a catalyst for the next recession. The bigger problem, however, is that with rates still not far from recent lows, the Fed will have very little ammunition when it comes time to fight the next recession. In other words, taking rates down from 2 or 2.5% may not be nearly as effective as dropping rates from 5 or 6% down to zero.
Whatever the Fed does or does not do, the scenario could be very bullish for gold prices. If the Fed sees the need to act more aggressively, it could signal that inflation is running hotter than the desired target. Not only that, but investors exiting the stock market may be looking for alternative places to put capital to work.
If the Fed stays on the dovish side of the ledger, stocks may continue their ascent-for now anyway-but inflation could very well overshoot the bank’s 2% target and have a significant impact on the economy and purchasing power.
With the central bank appearing more hawkish at this point, now is the time to consider diversification with alternative asset classes that can potentially perform well in an inflationary environment and even a recessionary environment. Physical gold may be the ideal asset class for such a scenario.
Not only does gold have significant upside price potential, but it may also potentially act as an important hedge against rising price pressures, a weaker dollar and a decline in purchasing power. The metal could also potentially benefit from fresh capital inflows if (or more like when) the next recession comes around and stocks finally head south.
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 build an allocation in physical gold using your IRA account.
Don’t wait for the next major stock market crash and recession, or for inflation to take a bite out of your portfolio 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, fed hawks, gold, inflation target, recession catalyst