• The Federal Reserve held rates at their 23-year high for the fifth time in March 2024
• Economists say the Fed’s data dependency, instead of strategic vision, is hurting the economy by keeping rates too high for too long
• The delay in rate cuts may present a buying opportunity for gold

Fed Keeps Interest Rates High

The Federal Reserve held rates at their 23-year high for the fifth time in March 2024. Fed Chair Powell signaled that rate cuts are likely later in the year. But he said the central bank wants to see more evidence of inflation moving towards its 2% goal before easing policy. As the ‘higher-for-longer’ rates stalls the economy, some experts are questioning the process behind the Fed’s decisions. They are now shining a light on the danger posed by those decisions. ¹

At the meeting on March 20, 2024, the Federal Reserve kept interest rates steady in a range of 5.25% to 5.5%. The Fed said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”²

³

Rate Cuts Delayed, Again

Powell emphasized that the Fed is “strongly committed to returning inflation to its 2 percent objective.” And that they will continue monitoring the economic outlook to determine their future decisions. The central bank wants to be “careful” about slicing rates prematurely. The Fed’s dot plot, which shows individual members’ rate expectations, indicated three rate cuts are projected for 2024. Investors had initially anticipated six or seven cuts. Wall Street is betting that the first of those cuts will come in the summer. ⁴

Questioning the Fed’s Methods

From Wall Street titans to Main Street shop owners, Americans have no choice but to accept the decisions of the unelected Fed. But now the central bank’s policies are being called into question by renowned economist Mohamed A. El-Erian. El-Erian is the Chief Economic Adviser of Allianz and former CEO of Pimco.

He points out the Fed chooses to look backward with data points without looking forward with a strategy. He said, “In today’s economy, an excessive focus on the numbers tips the balance of risks toward keeping interest rates too restrictive for too long, unduly increasing the probability of output loss, higher unemployment and financial instability.” ⁵

El-Erian pointed out that “undue data dependency” led to calling inflation “transitory” back in 2021. And as a result, the Fed was forced to issue unprecedented rate hikes to make up for lost time. Powell’s commitment to depending on shifting data has contributed to uneven signaling, reactive measures, and sudden pivots. Unnecessary market volatility has resulted. It has been compared to driving a car by looking in the rear-view mirror instead of the windshield.

With inflation rising once again, policymaking will most likely become more overreactive. More uncertainty is likely to result. A few months ago, the market surged after pricing in a potential six rate cuts in 2024. Those six have been shrunk down to three, and even they aren’t guaranteed. Predictions for the first rate cut in two years were first pushed back to May and then to June.

Goldman Sachs analysts said, “Our inflation path for the rest of the year is now in a range where small surprises could have large consequences.” The chief global strategist at JPMorgan Asset Management said even reducing the cuts from three to two would upset the market. ⁶

A More Dire Prediction

Bernard Connolly is an economic guru who correctly called the Great Recession and the eurozone sovereign debt crisis. He warned the US will plummet into a severe recession unless the Fed acts promptly to loosen monetary policy. Large cuts are required due to a weakening labor market and the depletion of pandemic-era savings. Such a recession would sharply devalue the dollar. The global financial system itself could be put in jeopardy.

Conclusion

The Fed is continuing its ‘higher-for-longer’ policy on interest rates with no apparent strategic vision for the future. Uncertainty is growing along with greater market volatility. No one, perhaps not even Chairman Powell, knows when or how many rate cuts will be occurring. Americans interested in protecting the value of their retirement funds from lingering inflation and increasing market volatility are flocking to precious metals. The delay in rate cuts may present a buying opportunity for gold as the prices recede before continuing their upward trajectory. To learn how a Gold IRA from American Hartford Gold can protect your financial future, contact us today at 800-462-0071.

Notes:
1. https://www.cnn.com/business/live-news/markets-fed-meeting-03-20-24/index.html
2. https://www.npr.org/2024/03/20/1239535703/federal-reserve-interest-interest-rates-inflation-powell-fed
3. https://www.barrons.com/news/us-fed-s-benchmark-interest-rates-d89771e4
4. https://www.npr.org/2024/03/20/1239535703/federal-reserve-interest-interest-rates-inflation-powell-fed
5. https://www.bloomberg.com/opinion/articles/2024-03-01/a-federal-reserve-held-hostage-by-data-is-asking-for-trouble?embedded-checkout=true
5. https://www.cnn.com/2024/03/20/investing/premarket-stocks-trading/index.html

• Biden proposes massive new taxes targeting businesses and high worth individuals
• The new taxes could hurt corporations, IRAs, and the housing market
• Investigate a Gold IRA to protect your assets before these taxes take effect

Prepare for Higher Taxes

On top of facing record inflation, interest rates, and debt, Americans should now brace for higher taxes if the Biden administration has its way. As a former White House economist put it, Biden’s latest budget is a mix of tax hikes, handouts, and living with debt. While this government tries to fund its left-wing agenda, those interested in protecting the value of their savings should consider taking steps now to insulate themselves from new taxes.

New Taxes

Biden’s new budget includes steep tax increases on businesses, high worth individuals, and retirement plans. His proposal amounts to a gross tax hike exceeding $5.1 trillion over 10 years. It creates more complex rules for taxpayers at all income levels. According to the Tax Foundation, the promised higher taxes would decrease economic output and incomes and reduce US competitiveness.¹

²

The Tax Foundation maintains that the plan’s promised deficit reductions are based on several unrealistic assumptions. The decrease takes for granted that the 2017 tax cuts will be left to expire, despite Congress signaling otherwise. It also presumes the child tax credit won’t go beyond 2025 which goes against Biden’s platform. And it factors in robust economic growth that falls far short of what the Congressional Budget Office is predicting.

Businesses and corporations are hard targets in this proposal, facing a 33% increase in taxes. The Tax Foundation has found corporate income tax to be the most harmful tax for economic growth. US businesses are already hampered by one of the highest corporate tax rates in the world. Increasing it will further crush growth in an economy already on the cusp of recession. Studies have shown that lowering the corporate tax rate significantly boosts investment in the US – yielding economic benefits to every level of society.³

Beyond business taxes, the proposal includes raising the top individual income tax rate to 39.6%. It also intends to tax long-term capital gains at ordinary income tax rates and limit retirement account contributions for those with large IRA balances. For some taxpayers, Biden wants households to pay a minimum 25% tax rate on unrealized capital gains. In other words, you’d be paying taxes on profits you haven’t even collected yet.

Beefing Up the IRS

New tax laws don’t matter if they can’t be enforced. Biden plans to preserve the $80 billion funding for the IRS that was in the Inflation Reduction Act. It calls for an additional $104.3 billion in IRS funding on top of that.⁴

Another problem with Biden’s new tax plan is that it is exceptionally complicated, which is saying something when it comes to tax codes. A new higher corporate alternative minimum tax meant to be put into effect has been consistently postponed. The reason for the delay is that it is too complex to enforce, even for the IRS.

The Housing Market

The proposed taxes meant to help a stalled housing market are most likely going to make it worse. Biden has called for tax credits to subsidize home purchases and developers. But boosting demand though subsidies is likely to cause housing prices to go even higher. And market dynamics mean most of the credits will stay in the pockets of developers and financing agencies with no guarantee of more houses being built.

Reactions to the Budget

Kevin Hassett is a former Chairman of the Council of Economic Advisers. He said. “It’s just astonishing, this budget. What they’re doing is they’re borrowing to gin up GDP, but they’re not really getting much GDP out of it. In fact, they’re wasting a lot of the money.”

He continued, “”And so Biden is borrowing money from the Chinese to give jobs to illegal aliens and he’s doubling down on that in the budget, and it’s absolutely economic nonsense. It’s got to stop.”⁵

Senator Rick Scott said, “Prices keep going up, interest rates keep going up, and taxes keep going up, but President Biden wants to add another $6.4 trillion in debt over the next four years with more reckless, inflation-fueling spending.” And Senator John Cornyn said the massive new taxes on the job creators will cause prices to increase.⁶

Conclusion

The Biden administration is adding high taxes onto its legacy of inflation, debt, and government handouts. Analysts think that if even half of his tax proposals make it through Congress, businesses and individuals will suffer. Before these taxes become law, Americans interested in protecting their retirement savings from heavy new taxes should investigate a Gold IRA from American Hartford Gold. Learn how precious metals can safeguard your future today by calling 800-462-0071.

Notes:
1. https://taxfoundation.org/research/all/federal/biden-budget-2025-tax-proposals/
2. https://taxfoundation.org/blog/biden-budget-taxes/
3. https://taxfoundation.org/blog/biden-budget-taxes/
4. https://www.reuters.com/world/us/biden-budget-plan-would-raise-us-taxes-by-4951-trillion-over-decade-treasury-2024-03-11/
5. https://www.foxbusiness.com/economy/former-white-house-economist-warns-bidens-budget-catalyzes-economic-disaster
6. https://www.foxbusiness.com/economy/former-white-house-economist-warns-bidens-budget-catalyzes-economic-disaster

• Gold prices are reaching record heights with no slow down in sight
• Numerous forces are aligning to push gold prices higher
• Americans are moving into Gold IRAs to gain both tax-advantages and the wealth protection of physical precious metals

Gold Prices Continue to Rise

“There is a perfect storm brewing in the gold market,” says Phillip Streible, the Blue Line Future Chief Market Strategist. And a recent price surge is proving him correct. Gold rose 1.3% to hit a new record of $2,141.60 per ounce, $150 above its February lows. Prices rose on the hopes of a Fed pivot on interest rates, geopolitical risks, and a potential stock market crash.¹

Market watchers were surprised by the scale of gold’s rise. Experts are saying momentum is helping the precious metal to continue its upward trajectory.

²

Saxo Bank said increased demand came from the rising risk of a falling stock market. Ole Hansen, senior strategist at the bank, pointed to weak US manufacturing data as a signal for an impending market correction. There is also growing concern that the ‘Magnificent 7’ tech bubble is about to burst.

Gold’s ascent is boosted by the belief in upcoming interest rate cuts by the Federal Reserve. The exact date of when the cuts will happen is unknown. Swap markets show an almost 60% chance of a rate cut in June.

Central banks are also providing critical support to gold prices even as interest rates spiked last year. Typically, gold goes down when interest rates increase because interest paying securities become more attractive than non-interest paying metals. “Speculation over a Fed rates pivot and continued geopolitical tensions keep gold shining,” said Ewa Manthey, commodities strategist at ING Group.³

Geopolitical risks are also supporting gold’s safe haven demand.

“We expect gold prices to trade higher this year as safe-haven demand continues to be supportive amid geopolitical uncertainty with ongoing wars and the upcoming US election,” said the ING Group.⁴

Attacks on shipping in the Red Sea increase the risks to energy and supply chains. In addition, the conflict in the Middle East threatens to broaden into a wider regional war that could have global economic implications. Volatility is further amped up as a contentious US presidential election goes into full swing, bringing a new level of uncertainty with it.

Bullion was also supported over the Lunar New Year. Chinese consumers are seeking safe haven assets against the turmoil in the country’s stock market and collapsing real estate sector.

The prospect of another regional bank crisis is also fueling interest in gold. New York Community Bank is down 80% since January while other regional banks are down 40%. A collapsing banking system will have two effects on gold. Investors will flock to the precious metal as a safe haven asset to protect the value of their portfolios from the impact of a banking crisis. It may also cause the Fed to cut rates sooner to provide relief for banks being crushed by high interest rates.

Gold – Room to Go Higher

Gold has risen more than 600% since the turn of the millennium.

Analysts think that there is significant underinvestment in the gold market right now. There is already critical support to keep gold above $2100. Streible continued, “I think we could be easily back at $2,500. If you go since 1990, within the first 30 days of the first interest rate cut, gold futures on average have had a rally of about 6%. So if you go 6% from here, that’s going to be about another $150 higher. So I think $2,500 is a realistic target.”⁵

Conclusion

All the contributing factors that elevate gold prices are coming into alignment. Interest rates are set to be lowered, reducing the holding cost of gold and competition from interest bearing assets. A rise in global risk if fostering demand for safe haven assets. A tech bubble ready to burst and a banking crisis about to erupt hold the potential to irreversibly damage retirement funds, increasing the need for the security provided by precious metals. A Gold IRA from American Hartford Gold can combine the benefits of wealth protecting precious metals with the tax advantages of an IRA. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.mining.com/gold-price-sets-new-record-on-fed-pivot-geopolitical-risks/
2.Google
3. https://www.mining.com/gold-price-sets-new-record-on-fed-pivot-geopolitical-risks/
4. https://www.mining.com/gold-price-sets-new-record-on-fed-pivot-geopolitical-risks/
5. https://finance.yahoo.com/video/gold-prices-hit-2-1k-152713687.html