After the Federal Reserve’s Open Market Committee (FOMC) meeting on Feb. 20, 2024, gold shot up $50 per ounce in a matter of minutes, rising from $2,160 to $2,210 on the futures market. In the same few minutes, silver shot up from $25.10 to $25.70. Both settled down by the opening the next morning, but that was a new closing high for gold and a 10-month high for silver.
Gold, silver (and the stock market) rose because the Fed Chairman, Jerome Powell, did not seem dismayed by the series of higher-than-expected inflation reports for January and February 2024. He and his Fed board members were still intent on cutting interest rates three times this year, most likely starting in June, according to their published voting intentions in a “dot plot.” Also, many other major central banks seem ready to cut key interest rates in June, or before. This past Thursday, the Swiss National Bank reduced its key interest rate to 1.5%, while the Bank of England, European Central Bank (ECB) and our own Fed have signaled intentions to cut rates in June. For instance, the European bank president Christine Lagarde said the ECB will lower rates in June if their inflation figures and wage data remain within guidelines before then.
Even though inflation has ticked up lately, the Consumer Price Index (CPI) may severely under-report the real inflationary impact of Bidenomics. A paper released last month by a leading Democratic Party economist (Lawrence Summers) calculated the impact of rising debt service, not included in the CPI, and found the CPI peaked at 18% (not 9%, as advertised) and its actual level at the end of 2023 was 7% (not 3%, as reported). The paper, published in February 2024 by the National Bureau of Economic Research (NBER) was titled “The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly.”
The authors pointed out that from 2022 to 2023, we saw the most rapid rise in interest rates in history (over 5% in 15 months), resulting in huge debt increases and rising loan service costs. This study calculated that this rise in rates pushed mortgage rates over 140% higher and car loans about 80% higher, while credit card rates rose from an average 15% APR to 23% APR. This pushed the “real” Consumer Price Index to a peak of 18% (annual rate) in April 2022 and a recent real reading of 7% (rather than 3%) as of the end of 2023. This rise in debt costs hurts the poor the most but it hits most Americans as well, and that’s a reason why the President’s poll numbers are so low.
