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Written by Chris Marcus for the Miles Franklin blog

Federal Reserve chairman Jerome Powell gave his latest economic update last week, and his assessment that he’s concerned about both growth and inflation means that the case for investing in precious metals is as strong as ever.

Federal Reserve Chairman Jerome Powell delivered an upbeat assessment of the economy and said it justified continued interest rate increases. But he opened the door to a potential policy shift and outlined risks if escalating trade tensions result in permanently higher tariffs.

The Fed expects recent tax cuts and an increase in federal spending to boost spending and investment at a time when the labor market is already tight. This has put officials on the lookout for signs the economy could be overheating.

This leaves the Fed in the position of balancing an incredibly complex juggling act.

On one hand, the Fed is attempting to maintain the impression that it has a control on inflation. Yet on the other hand it’s finally acknowledging that there are some serious problems facing the underlying economy.

To the degree that even some of the mainstream Wall Street economists have noticed and are confused.

“Are they fighting the war against inflation or are they trying to cushion the shock to growth?” said Ethan Harris, chief economist at Bank of America Merrill Lynch. He said the weakness in overall growth, rather than faster price increases, would be the Fed’s bigger worry. 

The unfortunate reality is that at this point there is no easy way out for the Fed. Similar to how after someone commits a crime and then does not want to go to jail, by the time the crime has been committed, it’s often too late.

In this scenario, the Fed already wildly expanded the money supply a decade ago, and now it’s facing the consequences of its past actions. Which have resulted in the scenario in which prices are going to most certainly continue to rise due to the previous expansion of the money supply, at a time when the economy, and in particular the banking system, are both already fragile.

The Fed has talked about how it is going to raise rates to keep inflation in check. But now the latest inflation data shows that even according to the flawed and understated government numbers, prices are increasing at a 2.9% year-over-year pace. Well above the 2% threshold the Fed says it targets.

So on one hand it needs to keep raising rates. But with a trade war, a weak banking sector, and a suddenly shaky real estate market, the Fed has an awfully tricky balance to maintain.

How it maneuvers this predicament will be fascinating to watch. Yet what hasn’t changed is that the current system has passed the point of no return, and precious metals continue to serve as an incredible form of insurance against whatever the Fed does at this point.

Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).