- Inflation unexpectedly jumped again, bringing annual inflation to 3%.
- The Federal Reserve may delay interest rate cuts, increasing market volatility.
- A Gold IRA can shield retirement funds from the ‘invisible tax’ of inflation.
Inflation Unexpectedly Increases
Inflation has been a primary concern for Americans over the past few years, especially after it hit a 40-year high of 9.1% in 2022. While inflation did slow somewhat in 2023, it hasn’t disappeared. On the contrary, recent reports show it’s on the rise again. This uptick is causing anxiety for consumers, investors, and the Federal Reserve alike.
After a hotter-than-expected Consumer Price Index (CPI) report, the Dow Jones fell over 300 points. The S&P 500 and NASDAQ also dropped. Major tech stocks like Amazon, Microsoft, and Alphabet all took a hit after the CPI report.
By the Numbers
The January CPI saw a 0.5% jump, pushing the annual inflation rate to 3%, higher than economists had expected. Core CPI, which excludes volatile food and energy prices, rose 0.4% for the month and 3.3% for the year, marking its highest level in 10 months. The recent rise is mainly due to higher prices in food, energy, and housing. Key areas that impact everyday Americans.1
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A headline issue, egg prices spiked by 15% in January, up a staggering 53% over the past year. Housing costs, which make up 35% of inflation’s overall impact, continue to climb as rents and home prices increase across the country. Gas prices are rising again, partly due to the possibility of tariffs on crude oil, even as the U.S. remains the world’s largest oil producer.3
At the same time, the 10-year Treasury yield spiked from 4.54% to 4.66%. Meaning higher costs for mortgages, auto loans, and credit cards.4
Inflation and Interest Rates
As costs continue to rise, the Federal Reserve’s interest rate policy is growing murkier. While the Fed had previously forecasted rate cuts for this year, surging inflation makes that less likely. President Donald Trump has publicly called for interest rates to be lowered. But Federal Reserve Chair Powell has made it clear that his decisions will not be swayed by political pressure.
Powell emphasized that while progress toward the 2% target has been made, “we’re not quite there yet.” Powell reassured the public that the U.S. economy is strong, and the country is not in a recession, negating the immediate need for rate cuts. January’s jobs report showed that while job growth slowed, unemployment fell from 4.1% to 4% and wage growth remained stable. As a result, rate cuts could be delayed until the end of the year—or even further. There has even been talk of new rate hikes.5
Sameer Samana is head of global equities at the Wells Fargo Investment Institute. He said, “The hotter-than-expected CPI confirms investors’ anxiety regarding too-hot inflation that will keep the Fed on the sidelines.” As inflation rises quicker than expected, analysts believe rates will stay higher for longer. Thereby keeping borrowing costs high and fueling market uncertainty.6
Inflation Expectations Grow
The growing expectations for sustained inflation pose a real risk, as they can create a self-fulfilling cycle. As businesses and households expect prices to continue rising, they adjust their behavior. Businesses increase prices and workers demand higher wages. These further fuels inflation and creates a difficult-to-reverse inflationary spiral.
Gold Reacts to Rising Inflation
Gold’s appeal as a safe-haven asset has held strong, even in the face of rising inflation. Gold prices initially dropped after the CPI report. But they quickly rebounded as investors sought refuge in precious metals. Despite inflation’s impact on bond yields and the dollar, gold’s status as a store of value remains steadfast. And its price is hovering at all-time highs. 7
Conclusion
With inflation not showing any signs of slowing down, the best way to secure your future is to make smart, informed choices now. Physical precious metals in a Gold IRA can protect the value of your nest egg from inflation’s ‘invisible tax’. Contact us today at 800-462-0071 to learn more.
