While markets largely expected a first Federal Reserve rate cut at the September Federal Open Market Committee (FOMC) meeting, Fed Chairman Jerome Powell made it all but explicit last week that the FOMC will recommend a rate cut in September. Speaking at the Kansas City Fed’s annual Jackson Hole symposium, Powell stated: “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” In other words, a September rate cut is all but certain, the only question is how much the Fed will cut rates. But in forecasting his actions so far in advance (nearly one month), Powell is taking some big risks. Will Rate Cuts Do Anything? On the one hand, Powell’s comments are in keeping with the thinking of his immediate predecessors, who sought to assuage markets and keep them in the loop with regard to what the Fed was doing. Fed Chairmen know that their words and actions move markets, so the more prepared markets are for those actions, the smoother should be the result once the Fed acts, at least in theory. But on the other hand, by telegraphing his intentions so far in advance, there is a great risk that markets will already price in the Fed’s actions by the time mid-September rolls around, so that the actual rate cut won’t do much to move markets. It might then seem like the Fed’s rate cut is actually a dud, and could lead to growing pressure to cut rates further. Stock markets certainly reacted happily to Powell’s comments, with markets having gone on a tear this week. But how about bond markets? Yields on 6-month T-Bills have fallen about 20 basis points over the course of the month, while most other short-term T-Bills have fallen by around 15 basis points. If the Fed decides on a 25 basis point cut next month, that means that bond markets have already priced in most of that rate cut already, so the impact on bond markets come September may very well be minimal, unless the Fed decides to shake things up and make a 50 basis point cut. But this telegraphing of intentions could end up backfiring. What happens if next month’s inflation report shows that inflation jumps back up to 3.3%? That would make it more difficult to cut rates, and might cause the Fed to postpone a cut until the next meeting in November. But how would markets react? Since markets are already starting to price in the effects of a September rate cut, a failure to do so could see a spike in interest rates if a rate cut doesn’t materialize the way markets expect it to. We saw similar behavior last year, as bond yields started to drop in anticipation of a Fed rate cut this spring. But once the likelihood of that rate cut evaporated, bond yields rose back to their previous levels. Powell’s Dangerous Gamble Powell and Fed policymakers are playing with fire when they start attempting to game markets by forecasting their moves. There is still a lot that can happen over the next month, and while there is a greater likelihood that the Fed will cut rates than that it will not, it’s still too soon to say with certainty what the Fed will, could, or should do. The risk the Fed runs is that it may box itself in and have to do something different as economic conditions change. If that happens, then the Fed risks its credibility, and anything Powell says from here on out will have to be taken with a mighty big grain of salt. Let’s hope for the sake of the economy that Powell hasn’t talked himself into a corner, and that his attempt to keep markets informed of Fed actions doesn’t end up backfiring on him. Protecting Yourself Against Rate Cuts With Gold If you remember the decade after the 2008 crisis, it was marked by historically low interest rates, held near zero for longer than had ever been done before. And there was even discussion of negative interest rates, which did in fact occur in Europe and Japan. For the past several years American savers have benefited from normalized interest rates, with returns on T-Bills, high yield savings accounts, and money market accounts actually outpacing official inflation rates for once. But once the Fed starts cutting rates, those less risky investments are going to start looking less enticing. And Americans who want to stay ahead of the curve are going to have to start thinking about how they’re going to react when, and ideally before, the Fed starts cutting interest rates. One way that many Americans have decided to start safeguarding themselves is by buying gold. Gold has long served as a safe haven and store of value, and it’s one of the first save havens that people turn towards when times get tough. Gold has set numerous all-time highs recently as safe haven demand has continued to strengthen, buoyed by fears of recession. And with Fed rate cuts in 2001 and 2007 having come at the start of recessions, there’s a good chance that the Fed’s next rate cut could also presage the next recession. If you want to put gold to work for you in helping protect your hard-earned money, now is the time to start thinking about how to do it. Whether you’re looking at a direct cash purchase of gold coins to store at home, or rolling over 401(k) assets into a gold IRA, there are numerous ways to benefit from owning gold. For over a decade Goldco has been committed to helping Americans from all walks of life benefit from owning gold. Whether you’re a first time gold buyer or you’ve been putting away gold for years, Goldco has gold coins and gold bars that can fit your needs. If you’re looking ahead to when the Fed

After this week’s inflation report, the stage seems to be set for the Federal Reserve to cut interest rates at next week’s Federal Open Market Committee (FOMC) meeting. But the one big question everyone has is, will the Fed cut interest rates by 25 basis points (0.25%) or 50 basis points (0.50%)? There are some advantages and drawbacks to each approach, and the Fed has to toe a fine line, lest it cause markets to panic. But what are the chances that the Fed jumps in with a big cut next week? The Case for 25 Basis Points The case for a 25 basis point cut boils down to three major points: Don’t Spook Markets While labor markets are weakening, a 50 basis point cut might be seen as an indicator that the economy is in worse shape than most people think, and thus is in need of greater stimulus. And that could scare Wall Street. The last thing the Fed wants to do is to spook markets and spur a huge selloff. Since most people are expecting a 25 basis point cut, doing that wouldn’t ruffle any feathers. Wait and See While inflation is down to 2.5% year on year, core inflation is still at 3.2% year on year. With core inflation still somewhat elevated, the Fed may want to wait and see what impact its initial rate cuts have. A rate cut that’s too big could boost inflation, necessitating either a mid-cycle pause or hike, something the Fed wouldn’t want to do. So a 25 basis point cut is seen as a good first step until the Fed has a better idea which way the economy and inflation are going. Don’t Do Too Much Before the Election The Fed also has to deal with the fact that the presidential election is coming up in November and the Fed doesn’t want to be seen as trying to influence the election. A 50 basis point cut might be seen as an attempt to goose the economy right before the election, and could damage the Fed’s reputation and credibility. A 25 basis point cut is the safer choice, as it’s already expected, and won’t be seen as trying to hand the election to Harris. The Case for 50 Basis Points The case for a 50 basis point cut also has three major bases of support. Historical Precedent The last time the Fed began a rate tightening cycle like this, in September 2007, it started off with a 50 basis point cut, before transitioning to 25 basis point cuts at subsequent FOMC meetings. So a 50 basis point cut wouldn’t necessarily signal that things are getting bad, merely that the Fed is starting off a rate cut cycle that it intends to see through, rather than an intra-cycle adjustment period. Get Ahead of the Curve The Fed was castigated for its failure to respond to inflation, and rightly so. First the Fed tried to tell us there would be no inflation, then it tried to say that inflation would only be transitory, then it tried to tell us that it could manage it. None of those were true, and the resulting inflation ended up being the highest in over 40 years. The Fed was behind the curve the entire time. Does the Fed want to remain behind the curve when it comes to its rate cutting cycle as well? Some Fed officials are already questioning if smaller rate cuts might not respond to falling inflation fast enough. If the Fed isn’t aggressive enough in its cuts, the fear is that inflation could fall to under 2% before the Fed gets interest rates to where it wants them to be, which could spur larger rate cuts later. Markets Have Already Priced in Cuts Since the beginning of July, yields on 1-, 2-, 3-, 4-, and 6-month T-Bills have fallen 27, 29, 37, 46, and 65 basis points respectively. That means that markets have more than priced in a 25 basis point cut already. If the Fed wants to actually influence interest rates and markets, a 25 basis point rate cut won’t do much, because that cut has already been priced in. But a 50 basis point cut could certainly push interest rates down further. Does the Fed want to rely on its forward guidance to allow markets to anticipate Fed actions and price them in ahead of time? Or does it want to be a market maker and have its policy actions actually influence markets and interest rates? For those who don’t want the Fed to remain at the mercy of markets, and who want the Fed to stay ahead of the game, a 50 basis point cut is necessary to ensure that the Fed retains its credibility. What the Fed Will Do, and How You Might React With core inflation remaining elevated and higher than expected, there’s almost no chance that the Fed will cut by 50 basis points. So expect a 25 basis point cut and no more next week. But given the fact that the labor market continues to weaken, further cuts can be expected at the next two meetings. Markets have already priced in at least 1-2 more cuts before the end of the year. We could be at the beginning of a major rate cut cycle, like the Fed’s 2007-08 rate cut cycle, which saw rates fall from 5.25% to near zero. And if that’s the case, you can kiss current interest rates on savings accounts and money market accounts goodbye. Many Americans have been content to park their money in accounts earning 5%+ interest rates, but that could all be coming to an end. So the question they have now is, where can they put their money where it will be relatively safe? As everyone knows, there’s no such thing as a risk-free investment. But there are some assets that are considered safe havens, ports in a storm, that can help safeguard wealth when times get tough. Gold

In a move that was widely expected, the Federal Open Market Committee this week decided to lower the target federal funds rate. The move had been more or less forecast for weeks in advance, and recent economic data releases bolstered the Federal Reserve’s case for cutting rates. What was surprising to many, however, was the fact that the Fed decided to cut the federal funds rate by 50 basis points (0.50%), rather than the 25 basis points (0.25%) that many people had expected. That brings the federal funds rate down to 4.75-5.00%. With the last CPI inflation reading showing core inflation still stubbornly over 3%, and increasing more than expected, many had speculated that the Fed would stick to a 25 basis point cut rather than a 50 point cut. Markets reacted as might be expected, with the Dow Jones jumping nearly 200 points on the news, the S&P 500 climbing nearly 30 points, and both gold and silver rising as well. Stock markets greeted the news as a sign that the monetary spigots may be opening up again, while precious metals markets saw the rate cuts as a sign that the economy may be slowing down, setting up conditions beneficial for gold prices. But all those gains were given up by the end of trading Wednesday, perhaps due to the growing realization that the 50 basis point cut was the first salvo at an attempt to stabilize an economy that is slowly heading toward recession. What Will the Fed Do Now? The question everyone has now is what the Fed will do next. For perspective, the Fed’s first rate cut in its 2007-08 rate cut cycle was also a 50 basis point cut, which was then followed by a series of 25 basis point cuts. We might then expect further rate cuts at the next two FOMC meetings this year, which would bring the federal funds rate down to 4.25-4.50%. This comports with the summary of projections released by the Fed, which shows that most FOMC participants expect the target federal funds rate to be between 4.25% and 4.75% by the end of the year. Further rate cuts would then be expected next year, with most FOMC participants expecting the federal funds rate to be between 3.00% and 3.50% by the end of next year. Of course, FOMC projections are notoriously inaccurate. Changing economic conditions result in the need for action, so in all likelihood the rate may end up being lower at the end of next year. Shades of 2007 All Over Again If this sounds a bit like 2007 all over again, that’s because it’s eerily similar. In 2007 the Fed made a 50 basis point cut at its September meeting. Stock markets went on to set all-time highs in early October, then began a long and gradual decline that accelerated in 2008 and reached its nadir in 2009. Meanwhile the Fed continued to make periodic 25 basis point cuts, all while telling us the economy was doing just fine. Granted, we haven’t had our Bear Stearns or Lehman moment yet (or have we?), so there doesn’t appear to be any single major driver of potential recession. But given the Fed’s track record on rate cuts, and the history of recession occurring shortly after the Fed’s last two major rate cut cycles, the question of recession is right at the front of many people’s minds. The coming months will show whether the economy follows the same pattern it did back then. Every recession or financial crisis is different, but this one so far looks to follow the same pattern we saw back in 2007. What Can You Do? If the economy ends up in a crisis like that of 2008, we might expect to see the following: a gradual decline in stock markets later this year and early next year; rising gold and silver prices; and more signs of growing unemployment such as layoffs, buyouts, and return-to-office mandates. We could be entering a period of time that is quite similar to that of 2007-08, and many Americans are woefully unprepared. Debt levels are higher than ever, credit card delinquencies are rising, and we have yet to really feel the impact of higher interest rates on the commercial real estate market. A perfect storm of events is coming together that could result in another financial crisis as bad as 2008, or worse. Are you one of the unprepared? Or have you seen this slow motion train wreck coming and started to prepare yourself against it? Many Americans have already seen the writing on the wall, and have started to move their wealth into precious metals like gold and silver. Both gold and silver performed well during the aftermath of the 2008 crisis, and gold gained 25% during the same time period that markets fell more than 50% (October 2007 to March 2009). You don’t have to leave yourself at the mercy of financial markets, you can try to safeguard your savings and investments in whichever way you see fit. And gold and silver can be one way of doing that. With a gold IRA or silver IRA you can benefit from gains in gold and silver prices while still enjoying the same tax advantages of an IRA account. And you can fund your gold IRA or silver IRA with a tax-free rollover from existing 401(k), 403(b), TSP, IRA, or similar retirement accounts, helping you secure your retirement savings by owning physical gold or silver coins or bars in a precious metals IRA. Now that the Fed has commenced its rate cut cycle, the countdown has started. There isn’t an unlimited amount of time for you to secure your financial well-being if the economy continues toward recession. If you want to look at ways to help preserve your hard-earned money in the face of a looming downturn, call Goldco today to learn about how gold and silver can help