Federal Reserve Chairman Jerome Powell has indicated that rate increases will continue to take place on a regular basis until inflation subsides. While Wall Street will have hoped that the Federal Reserve would ease up on the punishing hikes, there seems to be no prospect of any respite on the horizon.
Speaking on Thursday at a monetary policy conference, Chairman Powell reiterated that the Feds are digging in for the long haul. “We need to keep at it until we get the job done,” he confirmed. “We need to act now forthrightly and strongly, as we have been doing.
“It is very important that inflation expectations remain anchored. The longer that inflation remains well above target, the greater the concern that the public will start to just naturally incorporate higher inflation into its economic decision making. Our job is to make sure that doesn’t happen.”
In the aftermath of those comments, the CME FedWatch Tool showed that markets now believe there is an 86% chance of another unusually large rate hike taking place in September.
The Federal Reserve Vice Chair, Lael Brainard also indicated that there would be no taking the foot off the gas pedal when considering further rate increases. Speaking at a banking conference on Thursday, she confirmed, “it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down.”
Cleveland Federal Reserve President Loretta Mester echoed that sentiment, saying, “I’m not even convinced that inflation’s peaked yet.”
These comments, and the clear indication that more increases are coming down the road, could spell additional pain for Wall Street. Stock indexes are already suffering as the economy slows, and the warning bells of recession are ringing out loud and clear.
In a briefing note issued on Wednesday, Deutsche Bank strategists estimated that the S&P 500 Index could shed another 25% of its value. Lead analyst Binky Chadha warned, “Leading indicators are consistent with a descent into recession.” That outlook is echoed by Morgan Stanley and Goldman Sachs, who have made similar comments.
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