INFLATION displayed on a calculator
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The US Federal Reserve increased interest rates by 75 basis points on Wednesday as it attempts to gain the upper hand on inflation.

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 (INDEXDJX:.DJI), Dow Jones Industrial Average (INDEXDJX:.DJI) and S&P/TSX Composite (INDEXTSI:OSPTX) had seen triple digit declines.

Bullish commodity prices amid bearish markets

This market volatility has also added tailwinds to energy and gold prices. The yellow metal spiked to US$1,877 per ounce late last Sunday (June 12), its highest price since early April.

By midday Thursday, some consolidation had pushed gold to the US$1,840 range. The precious metal is likely to find more support as investors take a more risk-averse stance against uncertainty.

Juan Carlos Artigas, global head of research at World Gold Council, emphasized the benefits of holding gold.

“As the Fed threads the needle to navigate the US economy to a 'soft landing,' we believe that, despite higher interest rates, the combined impact of inflation pressure and widespread geopolitical risks will reinforce gold as an attractive hedge for both retail and institutional investors seeking protection and liquidity in this turbulent environment,” he commented to INN via email.

In terms of value elsewhere, Del Real pointed to lithium as a great addition to an investment portfolio.

“My favorite name right now — and it's pulled back recently — is what I believe to be the most exciting lithium discovery in years — Patriot Battery Metals (CSE:PMET,OTCQB:PMETF),” he told INN. “It has scale, it has grade and it’s in a great jurisdiction, Quebec.”

While broad declines across global markets have created value opportunities for those willing to endure the risk, investors must remain cautious and diligent.

“Volatility will continue, and anytime we see mortgage rates double in a matter of months, you run the risk of something breaking,” Del Real said. “Make sure anything you buy has cash, catalysts and a good share structure.”

Don’t forget to follow us@INN_Resource for real-time updates!

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.


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