Precious Metal Prices Soar As U.S Enters ‘Technical Recession’ – What’s Next?
Inflation and Rate Hike Details
Once again, the Federal Reserve raised interest rates by a “super-sized” 75 basis points for the second month in a row on Wednesday as it doubled down on its aggressive approach to taming rapidly surging inflation despite early signs the U.S economy is starting to lose steam.
The decision, which had unanimous support, extended a string of interest rate increases that began in March and have ratcheted up in size as the Fed’s battle to fight inflation intensifies.
The rate rise means the central bank is in the throes of the most aggressive cycle of monetary tightening since 1981. It follows a half-point rate hike in May and a 75 basis points rate hike last month – the first of that magnitude since 1994.
With inflation running at its fastest pace in more than four decades, further rate rises are expected well into the second half of 2022, but the pace of those increases is hotly debated.
However, it goes without saying that inflation remains the Fed’s number one priority and they’re willing to sacrifice anything to achieve it – even if it that comes at the cost of a recession.
Central bank policymakers want to see a string of decelerating monthly inflation readings but economists warn that might not happen for months.
Over the last 12 months, inflation has spread to every corner of the economy with primary Cost of Living Expenses from Food, Fuel, Rent, Clothing and Energy prices – rising at double-digit annual rates for the first time since the early 1980s. U.S CPI data released this month, once again showed a further surge in those unavoidable areas of spending with Consumer Price Inflation rising at its fastest pace in 41-years.
U.S. Economy Shrinks in Second Quarter
Elsewhere, data released on Thursday confirmed the U.S economy has plunged into a “technical recession” in a sign of things to come for the rest of the world.
The official measurement of a recession is two successive quarters of falling gross domestic product.
According to official figures from the commerce department U.S GDP fell 0.9% on an annualised basis in the second quarter. This follows first-quarter GDP data showing the U.S economy shrank 1.6% in the first three months of 2022.
The fresh figures illustrate the scale of damage historic high inflation is wreaking on the world’s biggest economy, whilst simultaneously eroding consumers’ purchasing power.
If history has taught us anything, then the one thing that we do know for certain is both scenarios, whether that’s persistent Inflation or a recession, ultimately present an extremely lucrative backdrop for precious metal prices.
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