Expect Fireworks tonight!
The Fed Speaks at Jackson Hole
August 26th 2022
by David J Mitchell
All eyes are on Jackson Hole today….
The Fed is under intense criticism for falling asleep at the wheel; and they face a very tough predicament as the original designers and creators of this inflation spike in the first place. Both the US and global economies are slowing down very quickly (recession) at a time when the USD is rising across FX markets, putting incredible strain on the world's emerging markets. It would appear in the face of these headwinds that they are going to have to keep raising interest rates in order to restore their credibility.
The Fed seems determined to break the back of Wall Street’s recent and most unwelcome rally, clearly a bull-trap if ever there was one.
Their policy has become one of demand destruction, instigated with 3 distinct pillars of attack: raising interest rates, Quantitative Tightening (read here money supply contraction) and rising taxation (which is undertaken at government level). This will in turn drive down inflation without question, however the economy will break lower under the mountain of record historical debt and leverage. Sadly inflation is a lot more difficult (sticky) to control given the deep rooted issues surrounding the energy crisis and government responses to severe economic headwinds in the form of further deficit spending support conduits.
Great periods of economic crisis, inflation (more accurately Stagflation at this stage) and falling equity markets have led to precious metal prices rising significantly (e.g. the 1970’s and more recently from 2003 into 2011). The great monetary debasement event has not retracted into the shadows, it is however, the only game in town on the global political stage as well as at the Treasury level, and will re-emerge even stronger in 2023.
Huge volatility in the markets has to be expected this evening (Friday 26th August) as well as into early next week following on from The Fed's chairman Jerome Powell remarks tonight and the analysis and further Fed member comments of the same into the weekend.
I will update on prices levels and opportunities moving forward.
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