Steep Rate Hike Drags Markets Lower, Gives Gold a Bounce

Aiming to quash rampant inflation, which hit a four decade high of 8.6 percent in May, the US Federal Reserve raised its benchmark interest rate by 0.75 percentage points on Wednesday (June 15).

The hike was the largest since 1994, and was 0.25 percentage points more than many analysts had initially forecast, likely due to May’s higher-than-expected Consumer Price Index reading.

Since January, the Fed has raised interest rates three times in an attempt to avoid a recession, a feat Chair Jerome Powell still believes is attainable. During a press conference, he told reporters that an economic “soft landing” remains possible, but acknowledged it will be challenging to achieve.

“I think events of the last few months have raised the degree of difficulty, created great challenges,” Powell said. “And there’s a much bigger chance now that it will depend on factors that we don’t control.”

Those factors include “(persistent) supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Providing a counterpoint, Gerardo Del Real, co-founder of Digest Publishing and editor of Daily Profit Cycle, said that money printing is a factor that is in the Fed's control and was mismanaged.

“I’ve described central bankers as inebriated drivers behind the wheel, waiting for the light to turn green at a stop sign,” Del Real said, noting that the hike did not surprise him.

“The economy has been auctioned into two economies, one for the rich and one for those struggling to keep up with decades of irresponsible monetary policy,” he told the Investing News Network (INN).

“There will not be a soft landing for those struggling the most.”

The markets stayed on their downward trajectory following the aggressive rate hike, with indexes on both sides of the border dropping into bear territory on Monday (June 13); they continued to decline on Thursday (June 16).

By the noon hour on Thursday, the S&P 500 (INDEXSP:.INX), Dow Jones Industrial Average (INDEXDJX:.DJI) and S&P/TSX Composite (INDEXTSI:OSPTX) had seen triple digit declines.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.