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(Kitco News) – Inflation continues to dominate the market headlines as consumers feel the sobering effects of price increases.
On Friday, consumers received little good news after the US Commerce Department said the core personal consumption expenditures index, the Federal Reserve’s preferred inflation measure, saw a 4.9% annual increase, down from the 5.2% increase in March. Inflation has fallen from its February high of 5.3%.
Also, on the inflation front, in its latest consumer survey, the New York Federal Reserve indicated that while consumers see higher prices this year, three- and five-year inflation expectations remain firm albeit still elevated.
On paper, this is good news; However, consumers will continue to experience a lot of pain as prices remain high for the foreseeable future. Earlier this week, the Federal Reserve acknowledged that consumers are facing hardship as inflation erodes their purchasing power and wealth and weighs on economic growth.
In a recent interview with Kitco News, Axel Merck, president and chief investment officer, described the Fed’s precarious situation as running on the edge of a very narrow slope. While the central bank would like to control inflation, it will not risk triggering a recession, something that markets have been increasingly concerned about.
On Wednesday, the Fed signaled that its serious move only includes a 50 basis point interest rate hike in the next two meetings. Many analysts and economists have said that if the central bank is serious about controlling inflation, it will take tougher measures.
In a flurry of tweets, Tuesday, billionaire investor Bill Ackman, founder of Pershing Square Capital Management, said the US central bank needs to act aggressively now.
“Until inflation is satisfactorily addressed, investors don’t know if and how long the Fed will need to cool inflation. Uncertainty is the enemy of markets, especially in the short term,” Ackman said on social media. “By raising interest rates aggressively now, the Fed can protect and boost stock markets and the strength of the economy for all, while hampering livelihood-ravaging inflation, especially those less fortunate.”
However, the latest inflation reading on paper is giving the Fed some breathing space, so they will continue to talk aggressively but still be behind the inflation curve. Meanwhile, volatility will remain high and financial markets will be chaotic.
Analysts warned investors that stock markets will remain fragile in the current environment. The comments come as the S&P 500 looks to send a seven-week losing streak up 6% this week; However, analysts warn that inflation remains a threat, and many are looking to sell rallies in a weak economic growth environment.
While gold will face adverse challenges from rising interest rates, its role as a safe haven asset and an inflation hedge is far from over.
Merk had the best description of gold’s role in the wallet.
He said, “Gold is always an asset that you are glad you owned yesterday. But you have no idea why you should have it for tomorrow.”
Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.