The Federal Reserve had another meeting this week and said they still plan to raise interest rates. Although as is often the case, just not yet.
Keep in mind that the last housing crisis started in 2007, a full decade ago. Yet despite unprecedented amounts of monetary stimulus the Fed has still only been able to raise short-term interest rates back up to 1%.
Which would certainly make it plausible to wonder if the unconventional money printing programs really worked. After all, these were supposed to just be temporary boosts to get the economy back on track again.
So if the market is really as strong as many in the conventional Wall Street mindset seem to believe, shouldn’t it finally be time to normalize interest rates?
Wednesday’s policy statement might have been what the markets were expecting. But it was also somewhat in contrast to Fed Chairwoman Janet Yellen’s comments last week when she mentioned, “the probability that short-term interest rates may need to be reduced to their effective lower bound at some point is uncomfortably high, even in the absence of a major financial and economic crisis.”
So the Fed plans to raise rates because the economy is strong. Yet at the same time there’s an uncomfortably high probability that rates will go back down to 0%. And that’s without a crisis even occurring.
What happens if one of the bubbles the Fed has inflated in the stock, bond, and real estate markets finally bursts?
In reality this kind of confusion from the Fed is hardly new. Which is why it’s so critical to look past their conflicting commentary and focus on what’s likely to actually occur.
The Fed might continue doing some minimal rate hikes. Yet the further they raise rates, the more pressure they put on a fragile financial system that’s only functioning because of low rates. So there is indeed a good chance that at some point the Fed will revert back to “unconventional policy.”
Which is why owning gold and silver ahead of further monetary debasement remains a great financial response.