There is one headline that we will soon see possibly eclipsing the Ukraine/Russia news, and that topic is inflation and rising interest rates.
As you might know, most people are concerned about interest rates rising, including rates on home loans, cars, and luxuries—oh, scratch luxuries like gas—too expensive!
But according to our next guest, interest rates are not even close to where they should be in order to cram the inflation genie back in the bottle. We welcome financial forecaster Devlyn Steele. Welcome, Devlyn.
Q&A:
- Devlyn, lets jump right into it. Why do you say interest rates need to be much higher?
Answer: It’s not only me saying it. This is the assessment of analysts at one of the world’s most famous banking institutions,The Federal Reserve that recently raised rates for the first time in more than three years. And the Fed is planning 10 more rate hikes by the end of 2023.
- We’ve heard that these rate-hikes should quickly tame inflation. Do you agree?
Answer: No, I don’t. It’s likely that these rate-hike plans won’t even move the needleon inflation. That’s very bad news for retirement savers. Think about it. Peopole on fixed incomes with their money invested in fiat dollars, will likely see the true spending power of their dollars diminish, eat away by inflation that is not tamed by rising interest rates.
- Let’s put this in perspective. Give us some history on rates of inflation in the United States.
Answer: The Federal Reserve is hot on the trail of the highest inflation rate in more than 40 years[r1] – 8.5%. The central bank says its mid-March, 25, 2022-basis-point rate bump will be followed by six more increases this year and another four in 2023[r2] .[1]
- That’s a lot of rate hikes, considering we haven’t had any in recent years. So, will that tame inflation?
Answer: I do not believe so. The current Fed plans reveal the sum of those increases will result in a Federal Funds rate that’s just 2.75[r3] %.[2] And according to analysts at global banking giant Credit Suisse, that’s not going to cut it – literally. Credit Suisse’s chief U.S. equity strategist along with his colleagues recently declared “that while that while the Fed’s projected rate hikes ‘might appear restrictive, they are unlikely to sufficiently tame the current torrid pace of inflation[r4] .’”[3]
“Not only is the rate too low today,” the analysts said, “but it will likely be too low even afterthe Fed completes its projected rate hikes[r5] .”[4]
- Then where should interest rates be to stop the savaging of this inflation beast?
Answer: In the opinion of Credit Suisse – to rein in inflation we need Fed rates to be 9.8%.
- So, you want the Fed rate to be at about 10% in a couple of years?
Answer: here’s the kicker, we don’t need it around 10% in two years. We need those rates now. Right now. [r6]
- But the Fed has never raised rates that much that quickly in the 100-plus years of their existence.
Answer: You are correct. That would be historic but that’s what’s needed. Touch medicine for an economy that has never before been in these uncharted waters. Politicians keep printing that fiat money, pretending to be giving people something when they are just giving back a fraction of what people paid in taxes. Unfortunately, a bloated government doesn’t give out anything efficiently.
- What is the closest historic example of anything like this happening to the U.S. economy?
Answer: To reduce the high levels of inflation that characterized the 1970s and early 1980s, the Federal Reserve saw fit to raise the Fed Funds rate all the way to 20[r7] %. Mortgage rates peaked at 16.63%, according to Freddie Mac data. At the rate things are escalating, it is possible we might soon be paying more than 20% in interest on our next home. That’s more than triple the cash payout over 30 years than we are currently paying.
- Did those past seemingly draconian measures finally tame inflation.
Answer: Yes, that bold effort ultimately did send inflation packing.
- So, that was good news, right?
- Answer: I supposed on some level it was in terms of slowing down inflation but two recessions followed those moves, the second of which saw unemployment climb to nearly 11[r8] %.[5]
- Sounds like a darned if we do, darned if we don’t scenario. If you and Credit Suisse are right, then the Fed’s reluctance to raise interest rates more than scheduled, could mean persistently high inflation. But if the Fed does hike rates more significantly, we might be looking at an increased chance of recession.
Answer: Bingo.
- So, what can those of us who are not financial experts do to try and stay a few steps ahead of these two potential outcomes?
Answer: While there still is some uncertainty for the foreseeable future, retirement savers may find it helpful to consider measures now that could help mitigate the impact of that uncertainty on their hard-earned financial nest eggs. One of those options is to keep some of their investment portfolios tangible assets such as physical gold and silver among their holdings since US dollars are quickly eroding in the face of ongoing inflation that may or may not is stopped by Fed rate hikes, even if they initiate draconian measures.
Answer: Where may we get more information on acquiring gold or silver or other tangible assets that may act as a hedge against inflation?
Answer: AugustaPreciousMetals.com. Once there, you will see a picture of Joe Montana, one of our spokespersons. We also have many helpful resources, including free educational videos.
Sources:
[1] Jacob Sonenshine, Barron’s, “The Fed Projects 11 Rate Hikes Through 2023. That’s Unlikely.” (March 17, 2022, accessed 4/9/22).
[2] Ibid.
[3] Vivien Lou Chen, MarketWatch, “Federal Reserve’s projected rate hikes ‘won’t sufficiently tame’ inflation, Credit Suisse says” (March 30, 2022, accessed 4/9/22).
[4] Ibid.
[5] Paul Wiseman and Christopher Rugaber, APNews.com, “Ex-Fed Chair Volcker dies, tamed inflation with recession” (December 9, 2019, accessed 4/9/22).
