From Birch Gold Group
This past Wednesday, the Federal Reserve raised the benchmark interest rate for the second time in 10 years. As predicted by some, the decision caused minimal impact on markets; the thinking was that the markets had already “priced in” this rate hike.
But that’s not all that happened. The Fed also revealed a surprising detail about their plans for 2017, and it’s set to cause big changes to the American economy that could last for years.
3 More Hikes in 2017?
It looks like Wednesday’s rate hike was just the beginning. The big surprise we got from the Fed was that we can expect to see three more rate hikes over the course of 2017.
After a decade of near-zero rates, the Fed’s decision to pursue three more increases to the benchmark rate in the next 12 months comes as a major change. A single rate hike isn’t earth shattering, but the idea of three more in the next year is ambitious, to say the least.
With the complex effects – both good and bad – that higher rates have on the economy, Americans need to understand what’s ahead and how it could change the financial landscape.
Growing Pains
When the Fed moves to raise rates, it’s a signal that its committee members feel the economy is headed in the right direction, enough so that they think it’s safe to take off the training wheels (rock-bottom rates) for a while – a necessary move, but not without inherent risks. There’s no guarantee the economy won’t take a few tumbles before it remembers how to keep its balance.
For example, higher rates threaten to slow down any market that’s reliant on Americans being able to borrow money cheaply. Two of the country’s biggest economic drivers – the real estate and automotive sectors – are most at risk, but plenty of other industries could feel the squeeze too.
As lending and buying slow down, preventing a widespread pullback in the stock market will be extremely difficult.
1 Upside and Where to Find It
If the Fed’s decision to raise rates three more times in 2017 causes the economy to contract, it could result in an extended down period for stocks and mutual funds.
The Fed’s move to raise rates so quickly could cause things to get worse before they get better.
But to all this potential downside, there may be an upside.
Although we may see stocks, mutual funds, and other equities decline as we move into 2017, gold may stand to benefit. After all, it often acts counter to the stock market.
So, combined with all the other pro-gold economic forces at play in markets today, the Fed’s rate hike schedule may be a blessing in disguise for anyone holding gold.
Before the QE, I would say that the largest influence on declining bond yields was labor wage arbitrage due to immigration and China (job offshoring). With the advent of QE, aka bond monetization, the central bank put has driven yields to absurd lows, given default risk, that is very evident in every developed country.
Yes, I know they all have printing presses to buy up all they want, but I consider inflating away your obligations a form of default. So called bond vigilantes didn’t care as long as there was a bid for the bond giving them a profit. Now, however, things have changed.
Without large QE, and the prospect of burgeoning deficits, the vigilantes are getting edgy. Adding to that is the prospect of inflation gaining traction which, IMHO, is inevitable given past history of debt monetization.
Widespread selling of treasuries tell us that the Funds aren’t waiting around to see if another program of QE if in the offing. China is liquidating for multiple reasons, not least of which is to raise dollars to sell into the market to defend the yuan from depreciating too rapidly, resulting from capital fight.
So, without another big QE program, the market is forcing the Fed’s hand to raise, and follow where rates are already. I suspect one is on deck next year.
Um, have you already forgotten that the Fed also promised 4 hikes in 2016? I have this bridge to sell you too. Great views.
You are correct, Malty. The Fed is always hawkish when the stock market is up. At the first stumble, “Outside factors” will preclude any other hikes. Same as 2016. The Fed follows, not leads the markets. The dot plot is a joke.
Total increases would be 1% which means a year from now that would be an additional $200 billion added to the national debt. It ain’t going to happen.
$200 billion? You act like that is a lot of money. Come on man!!
Almost exactly one year ago the fed hiked and said four more to come in 2016.
At the same time – crude plunged, gold and silver got smashed, the USD surged higher and the DOW went on a tear.
Well. Guess what? The same thing is happening now! Its a replay. Rinse and repeat.
There will be NO rate hikes coming in 2017, unless the fed tries to make it three out of three.
Which won’t happen since Mother Yellen will be gone and Trump’s pick will be sitting in the chair.
Fed chairman babbles and nobody listens . The constant horse shit coming out of Washington will hopefully come to an end but I doubt it . As for the Federal Reserve any and all news has to be moronic babble that will change nothing . Our country is in deep Shit and all the .25 % basis points up down sideways will not change shit $20 trillion in the hole and that’s just a fraction of what the real debt is so Trump will fix it ya ! At least he knows how to play the bankruptcy game !