Fed’s Jerome Powell Says Rate Cuts Are Two Years Out: What Does This Mean to Investors?

As expected, the Federal Reserve announced a pause in rate hikes for June. But Chair Jerome Powell made it clear that cuts are not happening this year or next, while odds of a July rate hike increased to 70%.

“It will be appropriate to cut rates at such time as inflation is coming down really significantly, and again, we’re talking about a couple years out,” Powell said. “Not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate. If you think about it, inflation has not really moved down. We’re going to have to keep at it.”

Markets continue their state of flux as experts point in wildly different directions about what all this means for various assets. Crypto is being threatened by governments. Real estate is still looking feeble. The stock market is bipolar. Through it all, precious metals seem to be the only legitimate safe haven, according to many analysts.

Doug Carey, CFA, president and owner of WealthTrace, listed three bullet points about why he’s so bullish on the shiny stuff:

• Inflation: Gold is widely seen as a good hedge against inflation. Carey points out that a rate pause “might signal concerns about economic growth or inflation. This could lead investors to purchase more gold as a hedge against potential inflationary pressures, pushing the gold price up.”
• The strength of the dollar: Gold tends to have an inverse relationship with the dollar. When the dollar is weak — as it is during times of high inflation — gold prices tend to rise. While rates are currently paused between 5% and 5.25%, they’re still well above the Fed’s target of 2%, suggesting gold prices are likely to remain high for some time.
• Opportunity cost: “Higher interest rates increase the opportunity cost of holding non-yielding assets such as gold. If interest rates rise, investors may prefer to invest in interest-bearing assets such as bonds or savings accounts,” Carey says. With a rate pause, however, “gold becomes more attractive, potentially boosting its price as demand increases.”

The latest dot plot revealed that the Fed sees rates climbing by at least 50 basis points this year, but Powell added that these projections are unreliable.

“We write down at these meetings what we think the appropriate terminal rate will be at the end of this year,” he noted. “It’s based on our own individual assessments of what the most likely path of the economy is. It can, in reality, wind up being lower or higher. There’s really no way to know.”

Buy the Dip?

Jonathan Rose, co-founder of Genesis Gold Group, says the real “smart money” is not in trying to time everything out but to play the long game.

“Look, it would behoove me to say everyone needs to grab up precious metals in anticipation of them skyrocketing soon, but that’s not how we look at the investment,” he said. “Do I think we’re in the dip and metals are poised to rise? Yes. But we’re in this for the long haul which means we don’t make decisions based on daily price fluctuations. As I always say, you don’t wait to buy gold. You buy gold and wait.”

Rose, whose company is one of the only unabashedly faith-driven precious metals groups operating in America, has advised precious metals clients for over two decades.

“Especially as it pertains to retirement accounts, people should make their decisions based on the current and future state of the economy as a whole,” Rose continued. “The question shouldn’t be where gold and silver will be tomorrow, next month, or next year. The question should be what the state of affairs will be when Americans need disbursements from their life’s savings. This is why we love self-directed IRAs backed by physical precious metals.”

Skipping the Scams

News like what we’re seeing today can compel investors to act quickly. This has prompted a boom in email campaigns and social media sponsored posts from gold companies. But as Ira Bershatsky, managing member of Advisor Metals, pointed out following the Fed announcement, buyers should beware of scams.

“I got three emails within minutes of Powell making his statements from gold companies offering ‘free’ silver in exchange for buying their precious metals,” Bershatsky said. “One would think that Americans are too savvy to fall for the idea that they get something for ‘free’ if they buy hundreds of thousands of dollars in products, but I keep getting the emails so I guess the scam works.”

Advisor Metals specializes in bullion, offering both discreet deliveries directly to customers through cash purchases as well as rollover and transfer IRA accounts. He does not offer “free” silver.

“I want people to buy from my company just like anyone else would, but I’m not going to insult anyone’s intelligence by trying to convince them they didn’t overpay dramatically in order to qualify for their ‘free’ silver,” Bershatsky continued. “It makes more sense to me to just be honest and work with clients respectfully.”

The Smart Money

There has never been a time in modern history when most economists were completely bearish on gold and silver. It usually comes down to a question of what percentage investors should dedicate to precious metals.

“I think gold is worth investing in always as a part of a very well-diversified portfolio as I believe in the power of evidence-based investing,” said Dana Menard, CFP, founder and lead financial planner at Twin Cities Wealth Strategies.

Investment advice is almost always tainted by the incentives of the advisor. With the Biden-Harris regime pushing so hard for ESG investments in retirement accounts, the most common conclusion Americans are coming to is that they need to take more control over the direction of their portfolios. And as such, many are turning to precious metals as a safe haven during these tumultuous times.