The markets are trying to recover. And the price of gold was also able to make up ground. But tomorrow, Friday, is hovering over all movements on the financial markets. Then Federal Reserve Chairman Jerome Powell will address the annual Jackson Hole Symposium in Wyoming.
To help market participants, Powell will need to be clear on when the Fed will stop raising rates, Gary Wagner, editor at TheGoldForecast.com, told kitco.com.“The most important thing market participants want to understand is when the Federal Reserve will stop raising interest rates (…) and, more importantly, when it will start cutting the fed funds rate,” he said Wagner.
Before the Jackson Hole speech in 2021, Wagner had predicted higher inflation in 2022 when the Fed had yet to hike rates. “If you listen to some of what Chairman Powell has said over the past few months, he has acknowledged that they should have acted sooner,” he said. The Fed has failed to forecast inflation accurately and so have politicians.
“At the last symposium in Jackson Hole, the Fed still assumed that inflation was temporary and would work its way out of the system naturally,” he said. “Had you started a year earlier with small rate hikes of 25 basis points, you could have made a series of rate hikes that wouldn’t have shaken up the economy as quickly and as badly as it did.” At the same time, Wagner acknowledged that unforeseen events can also occur , over which the Fed has no control, have led to higher prices. He described the war in Ukraine as a “wild card” that drove up oil prices “like a second stage of a rocket”. He also said that food and energy prices in general should not be affected by Fed policy.
Wages and salaries increased by 5.3 percent compared to the previous year. Some economists are concerned about rising wages in times of inflation, claiming that higher wages can lead to more inflation as companies raise prices to offset higher costs. Wagner said that while wages are not a “decisive” factor in inflation, they are “a very important and big piece of the puzzle”.
The market is puzzling over how far the Fed will hike interest rates and, of course, how badly these rate hikes will damage the economy. A little more clarity about the course would certainly be good. But the Fed would first have to agree on what this course looks like.