What’s Next For Gold Price As Fed Mulls Next Rate Hike?

The Federal Reserve Dilemma: Controlling Inflation or Financial Stability

This month marks the one-year anniversary since the Federal Reserve embarked on their most aggressive interest rate hiking campaign since the 1980s. Historically every time the Federal Reserve has engaged in an interest rate hiking cycle, they have kept going “until something eventually breaks”.

And that’s the exact situation they find themselves in, once again!

Common wisdom would suggest, with the second and third largest bank failures in U.S history since the financial crisis of 2008 and worries of more to come – that would seem to qualify as a major breakage in the financial system and a pressing reason for the central bank to back off.

Not so fast.

The Federal Reserve’s dilemma over whether to press ahead with its aggressive interest rate hiking campaign or hit the pause button has been further complicated by the release of yet more, stronger inflation data.

Fed officials are due to gather for the most crucial FOMC meeting of this year on March 21-22, when they will decide how substantially to alter their plans for monetary tightening in light of the turmoil in the banking system triggered by last week’s collapse of three prominent U.S banks – Silvergate Capital, Silicon Valley Bank and Signature Bank.

But following the release of data this week, showing a 0.5% rise in “core consumer price inflation” in February despite a slowdown in the annual pace – the Fed must now thread a delicate needle of continuing to root out stubbornly high inflation – while also ensuring the smooth functioning of the financial system.

Unfortunately, the Fed is caught between a rock and a hard place. They are faced with a situation common to chess players down on their luck – stuck with nothing but bad moves to play.

On one hand, if the Fed continues hiking interest rates, then they ultimately risk breaking more things – if not in the real economy, then in the financial system. On the other hand, if the Fed suddenly changes course on rate hikes, that will inevitably lead to deeply entrenched inflation for longer.

Precious Metals Love Crises

If history is anything to go by, then the one thing we do know for certain is that precious metals don’t need a crisis to move higher, but they definitely loves a crisis!

Right now, both scenarios, whether that’s persistent Inflation or another economic shock – presents an extremely lucrative backdrop for precious metal prices ahead. That’s welcoming news for the bulls, but painful for anyone sitting on the sidelines, who must now decide how much FOMO they can handle.

Gold Price Forecast for March 15, 2023

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