Powell’s speech creates lingering pessimism on stocks and precious metals


Gold price recently

As of 5:23 p.m. EDT based on gold futures, the most active December 2022 Comex contract is trading down $13.60 or 0.78% and is currently set at $1722.70. Much like yesterday’s trading activity, current prices are just above the daily low of $1720.60. That being said, gold continues to trade lower for three of the last four trading sessions.

Inflation, recession and monetary policy

Powell’s keynote address last week had a lingering influence that continues to drive US stocks and precious metals lower in price. His message was resolute and clear, reaffirming that the Federal Reserve intends to bring inflation down at all costs.

According to Bloomberg’s EveningBriefing, President Powell has abandoned the idea that a soft landing is possible and is now aiming for something that will potentially cause far more suffering for American businesses and individuals. However, many analysts are convinced that the Federal Reserve’s hawkish monetary policy will not be enough to achieve its goal.

According to Natasha Solo-Lyons who wrote this EveningBriefing, analysts have put a name to this economic scenario using the paradoxical name “recession of growth”. It differs from a soft landing in that it is defined as a prolonged period of low growth and rising unemployment. It differs in that it stops before an outright recession.

The belief that President Powell is trying to reduce inflation with a “growth recession” to avoid an outright recession is analogous to cutting up a painting to fit a picture frame. The simple truth is that a recession is most likely inevitable and the question is how deep the recession will be and how much pain it will inflict on businesses and Americans in 2023.

Reaching the target inflation level of 2% when the most recent data vis-à-vis the PCE is above 6% is an unrealistic utopia without raising interest rates to match the current inflation rate or gradually increasing rates, on the understanding that it will be a multi-year process of fighting inflation.

A historical perspective of how various chairs of the Federal Reserve have coped with the task of bringing inflation down to an acceptable target level shows that this has never been accomplished without raising interest rates to match the level. current inflation.

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Wishing you as always good exchanges and good health,

Gary S. Wagner


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