The highly anticipated Fed meeting on monetary policy has concluded with the central bank electing to hike rates by 25 basis points. The quarter-point hike was not unsuspected and investors will likely be far more concerned with the central bank’s commentary about its plans for next year.
The Fed voted unanimously to hike rates today, while it lowered rate hike expectations for next year down to two from three. The Fed also lowered its longer-term estimate of the Fed Funds rate to 2.8% from 3% in what could be viewed as a signal that the central bank feels rates are approaching the so-called neutral rate at which they are neither stimulating nor restrictive.
The Fed also introduced a clause about monitoring global economic and financial developments, in what is likely an acknowledgement of recent market turmoil and the potential effects of the war on trade and global slowing.
In early action following the Fed announcement, stocks are not reacting well. After being up nearly 300 points earlier, the Dow Jones Industrial Average has reversed course and is now up only slightly.
The Fed announcement raises some serious concerns for investors and the economy going forward. Given the Fed’s increasingly dovish tone, it is becoming clear that the economy is not strong enough to tolerate higher rates. Not only that, but if the Fed does need to start cutting rates again at some point, it will not have as much ammunition as it did several years ago when rates were significantly higher.
The war on trade and a slowing global economy could lead to a period of stagflation in which inflation accelerates while unemployment climbs. Such a scenario could potentially lead to a protracted period of low or even negative returns for equity investors, and a deep recession.
Regardless of what the Fed does or does not do, the stock market seems to have already tipped its hand and a bear market could be getting rolling. The notion of higher rates, the global slowdown and the inability to hold any significant rallies are all solid clues that stocks could have considerably more work to do on the downside before eventually finding a long-term bottom.
A significant capital reallocation has likely already started in recent months and could accelerate in the weeks and months ahead as equity declines gain further momentum. Given the bearish outlook for stocks and the economy, now may be the ideal time to add diversification and there may be no better asset class to turn to given the current economic and geopolitical backdrop than gold.
Gold has enormous and unlimited upside price potential and may act as an important hedge against higher inflation and a weaker dollar. As stocks continue to decline, this key asset class is knocking on the door of a significant upside breakout.
Recent stock market declines could be just the beginning of a long and deep bear market as the economy gets closer to recession. It is important, therefore, to act now before the real selling gets started.
Adding gold to your portfolio has never been easier or perhaps more important. Speak with an Advantage Gold account executive today to explore your options for gold ownership. Our associates are here to answer any questions you may have, and can even show you how to build a significant allocation in this key asset class using your IRA account.
Don’t wait for the next major wave of stock declines or for gold to take off without you. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, fed announcement, fed funds rate, interest rate hike, trade war