Following Fed Meeting, Watch Out For These Market Risks
Last week the Federal Reserve held a policy meeting and raised interest rates by 25 basis points as expected. But perhaps even more important was the guidance they issued going forward, and the impact it will have on the financial markets
The main takeaway from the meeting was that the Fed, under new chairman Jerome Powell, still plans to raise rates as, if not more aggressively than previously anticipated.
The Fed voted unanimously to raise its benchmark federal-funds rate by a quarter-percentage point to a range between 1.5% and 1.75%. Officials said they expected to lift it another two or three times this year.
Most Fed officials expect to lift rates at least another three times in 2019, followed by another two times in 2020.
Personally I see it as a long-shot that the Fed is still raising rates two years from now. The stock market sold off earlier this year in response to higher interest rates, and should rates continue to rise as forecast by the Fed, the stock market is in line to continue getting clobbered. And you would think that in that scenario, at some point the Fed reverses course and reverts back to more easing.
But what this latest meeting tells us is that at least for now, the Fed does not appear to be anywhere near that point of changing course. And if it really is stepping away and not doing someto continue to prop up the markets (although that’s likely a far higher probability than most would imagine) while publicly telling the world otherwise, we are set for some rough times in the stock, bond, and real estate markets. With the possibility that the bubbles in each of these markets are at risk of being popped.
Because if rates go up while the Fed’s balance sheet goes down, that will eventually bring these other markets down as well. This has never changed. It’s only been a matter of time. Now the Fed has provided an instrumental clue in saying that despite recent declines, it’s still full steam ahead.
Which is ultimately good news for the owners of precious metals and those who simply just hope for a better and more honest future. The unfortunate reality is that our financial markets were long ago, and have become a far cry from what most who invest in them believe them to be.
The fact that asset prices are primarily determined by a group of academic bankers that are followingis not a good thing for the world. Yet the fact that the system has been pushed so far to the brink that it appears on the verge of its final collapse offers hope for a brighter future.
Typically a contractionary monetary environment would not be a good thing for precious metals. Yet with the system already so fragile, and unable to sustain any sort of normal credit environment, a crash in the latest series of bubbles that further exposes the fraudulent nature of the dollar would still in my opinion be a net positive for gold and silver. This last Fed meeting signifies that the amount of time between now and the ultimate resolution to these market imbalances has just been reduced.
As a result, the markets will remain fixated on interest rates in the coming months. While investors in stocks, bonds, and real estate should officially be on watch.