Fed's message this week: Higher rates, lower economic growth and higher unemployment. For the third consecutive meeting, the Fed raised interest rates by 75 basis point. The statement also stated that the Fed anticipates additional increases.
Summary of Economic Projections (SEP), showed that the median projection was for an additional 1.25% increase by Year End.
Additional 75 basis points will be added at the November 1-2 and 50 at the December 13-14 meetings. Projections show that there will be a 25-basis point increase in next year's rate before the Fed lowers rates in 2024.
Implied Fed Funds Target Rate Chart
Markets are under the control of central banks already
However, the statement acknowledged that Russia's war on Ukraine has caused immense economic and human suffering.
Inflation is rising due to the war and other related events. This has a negative impact on global economic activity. The Committee is very attentive to inflation risks.
The problem is that central banks don't have any control over supply issues. Their only recourse is to reduce demand to satisfy the limited supply.
The approach to raising interest rates is not aimed at specific sectors, but rather is broad-based and applies across the economy.
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Financial markets are very responsive to interest rate increases and often look ahead. Although equity markets fall before a rate rise, it can take 6-12 months for the economy to feel the full impact of interest rate increases.
Statistics can be misleading. The Fed measures the labor market using the U.S. unemployment rate as one of its main indicators.
To be considered unemployed, a person must not have looked for work in the past four weeks. They are not considered to be part of the labour force if they do not.
Also, the way that the unemployment rate is calculated could make it artificially low.
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Instead of being considered unemployed, people are "dropped out" of the labour force figures.
The percentage of people in the labor force has not increased to pre-covid levels, i.e. There are fewer people working in the labour market.
As a percentage of the US population, the number of employed has not increased to pre-covid levels. It is possible that the FED thinks that employment markets are more robust than they really are due to misleading statistics.
The FED is aiming to raise interest rates until there are no more labour market problems, so it could be that they are raising rates on the basis of bad statistics.
US Labour Force Chart
The Blame Game continues…
Individuals can give many reasons why they aren't returning to the labor market. Hospitality and health care are the most popular job categories.
Many healthcare workers are becoming burnt out and have moved to other sectors, or chosen to continue their education, stay at home, or retire early rather than returning to their sector.
High burnout among healthcare workers is reflected in the average salary for paramedics in New York City of US$48,000-65,000. The average monthly rent is about $4,000.
This is why there are so many job openings in this sector. Inequality in wage has been an issue for many years in the United States. Forbes reports that the average S&P 500 CEO earns 299 times as much as the average employee.
This is compared to the average CEO earning 50x more than the average employee back in 1950. The current post-covid environment is ideal for American employees to demand higher wages.
The Fed is trying to reduce demand by encouraging households with higher incomes and businesses to reduce their spending, while keeping lower income households from falling further into poverty.
Powell quickly points out that inflation is most detrimental to households with lower incomes, but higher interest rates can also have a negative impact on households with lower incomes. High unemployment rates are more detrimental to households with lower incomes.
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SEP projections show that the Fed expects economic growth to be lower than its June Projection (table ci-dessous), with only 0.2 and 1.2% growth next years.
A higher unemployment rate of 4.4% is projected to mean more than 1,000,000 additional Americans are unemployed. Yet, inflation remains well above the Fed’s 2% target.
There are strong parallels between high inflation and rising unemployment in the 1980s. We are reminded of Jimmy Carter when we consider the U.S. Administration's inability to blame anyone but themselves.
It was too late for the Fed to recognize inflation, to raise rates and to begin quantitative tightening (shrinking their balance sheet). Now, they will be late to realize the extent to which higher interest rates are slowing down economic growth.
If the negative U.S. growth of two quarters in the first half of this year and the terrible earnings announcement by FedEx are any indications, the U.S. as well as the global slowdown are upon us!
If economic growth slows, politicians will blame the central banks.
From the Trading Desk
Market update
Yesterday, the US interest rate rose by 75 bp.
The afternoon session saw equity markets move back and forth, first falling, then recovering to flat. Finally, the market closed down as we received a more hawkish Fed.
The Dow Jones closed at 30183, 1.7% lower than the S&P's close.
The equity markets appear to be close to recouping all of their gains from June's summer lows.
With the Euro at a 20-year high, the dollar continues to strengthen.
After a 26% decline in USD this year, the Bank of Japan has just intervened to support the Yen.
This is the first intervention by the BOJ in FX markets since 1998.
Due to the strength of the USD, and higher yields from the Treasury, Gold has performed reasonably well.
Gold is up in GBP and Euro terms. In Euro terms, close to 6%; in GBP, 10%.
We agree that USD is lower, but if you remove the dollar strength component, gold in USD terms has fallen 5% over the year. Compare this with leading equity indices, which have dropped more than 20%.
Stock update
Gold Britannia available for immediate settlement – We have limited quantities of Gold Brittania's for storage or delivery at Spot plus 9.5%.
Gold Brittania's on allocation – The Royal Mint has stopped producing new British silver and gold coins due to Queen Elizabeth II's passing. You can still place orders on a back order/allocation basis.
We anticipate that the order will settle in three months.
Spot plus 6.5% is the premium for Gold Brittania's backorder/allocation.
GoldCore has excellent stock and is available for all gold bars and coins.
For any questions, please contact our trading desk.
Silver coins can now be delivered or stored in Ireland and across the EU, with the lowest market premium.
Silver Philharmonics start as low as 36% Spot
Gold Coins for Sale
GOLD PRICES (USD. GBP. & EUR – AM/ PM LBMA Fix).
21-09-2022 1674.45 1671.75 1476.03 1474.65 1687.68 1687.13
20-09-2022 1667.90 1664.15 1458.75 1460.29 1665.56 1667.48
16-09-2022 1664.30 1664.65 1461.75 1460.06 1666.96 1668.65
15-09-2022 1689.00 1689.10 1467.23 1467.32 1690.01 1689.10
14-09-2022 1703.80 1703.90 1473.79 1473.70 1702.78 1706.97
13-09-2022 1727.05 1704.85 1474.38 1474.35 1699.94 1699.56
12-09-2022 1726.50 1726.40 1478.23 1477.28 1698.01 1705.51
09-09-2022 1726.95 1713.40 1485.87 1479.52 1711.58 1705.18
08-09-2022 1720.25 1709.35 1498.17 1488.33 1720.42 1716.19
07-09-2022 1705.05 1702.65 1486.63 1492.54 1722.10 1719.34
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GoldCore News's post Brace Yourself for the Impact originally appeared on GoldCore News.
Frequently Asked Questions
How much do gold IRA fees cost?
An Individual Retirement Account (IRA) fee is $6 per month. This fee includes account maintenance fees as well as any investment costs related to your selected investments.
If you wish to diversify your portfolio, you may need to pay additional fees. The type of IRA you choose will determine the fees. Some companies offer free checking accounts, but charge monthly fees to open IRA accounts.
Most providers also charge annual management costs. These fees vary from 0% to 11%. The average rate per year is.25%. These rates can be waived if the broker is TD Ameritrade.
Can I buy or sell gold from my self-directed IRA
Although you can buy gold using your self-directed IRA account, you will need to open an account at a brokerage like TD Ameritrade. You can also transfer funds from an existing retirement fund.
Individuals can contribute as much as $5,500 per year ($6,500 if married filing jointly) to a traditional IRA. Individuals can contribute up $1,000 per annum ($2,000 if they are married and jointly) directly to a Roth IRA.
If you do decide you want to invest your money in gold, you should look into purchasing physical bullion instead of futures contracts. Futures contracts are financial instruments based on the price of gold. These financial instruments allow you to speculate about future prices without actually owning the metal. However, physical bullion is real gold or silver bars you can hold in your hands.
What are the pros and cons of a gold IRA?
An Individual Retirement Plan (IRA) has a major advantage over regular savings accounts. It doesn't tax any interest earned. This makes an IRA a great choice for people who are looking to save money but don’t want to pay any tax on the interest earned. However, there are also disadvantages to this type of investment.
You could lose all of your accumulated money if you take out too much from your IRA. The IRS may prevent you from taking out your IRA funds until you reach 59 1/2. A penalty fee will be charged if you decide to withdraw funds.
A disadvantage to managing your IRA is the fact that fees must be paid. Many banks charge between 0.5%-2.0% per year. Others charge management fees that range from $10 to $50 per month.
Insurance will be required if you would like to keep your cash out of banks. Most insurers require you to own a minimum amount of gold before making a claim. It is possible that you will be required to purchase insurance that covers losses of up to $500,000.
If you are considering a Gold IRA, you need to first decide how much of it you would like to use. Some providers limit the number of ounces of gold that you can own. Others allow you to pick your weight.
It's also important to decide whether or not to buy gold futures contracts. Futures contracts for gold are less expensive than physical gold. Futures contracts allow you to buy gold with more flexibility. They allow you to set up a contract with a specific expiration date.
You'll also need to decide what kind of insurance coverage you want. The standard policy does NOT include theft protection and loss due to fire or flood. It does offer coverage for natural disasters. Additional coverage may be necessary if you reside in high-risk areas.
In addition to insurance, you'll need to consider the cost of storing your gold. Storage costs are not covered by insurance. For safekeeping, banks typically charge $25-40 per month.
You must first contact a qualified custodian before you open a gold IRA. A custodian is responsible for keeping track of your investments. They also ensure that you adhere to federal regulations. Custodians aren't allowed to sell your assets. Instead, they must hold them as long as you request.
After you've determined which type of IRA is best for you, fill out the paperwork indicating your goals. The plan should contain information about the types of investments you wish to make such as stocks, bonds or mutual funds. The plan should also include information about how much you are willing to invest each month.
After completing the forms, send them along with a check or a small deposit to your chosen provider. After receiving your application, the company will review it and mail you a confirmation letter.
When opening a gold IRA, you should consider using a financial planner. A financial planner can help you decide the type of IRA that is right for your needs. They can also help you lower your expenses by finding cheaper alternatives to purchasing insurance.
Are gold investments a good idea for an IRA?
Gold is an excellent investment for any person who wants to save money. It is also an excellent way to diversify you portfolio. But gold has more to it than meets the eyes.
It's been used throughout history as a currency, and even today, it remains a popular form of payment. It is often called “the oldest currency in the world.”
Gold is not created by governments, but it is extracted from the earth. Because it is rare and difficult to make, it is extremely valuable.
The supply and demand for gold determine the price of gold. If the economy is strong, people will spend more money which means less people can mine gold. The value of gold rises as a consequence.
On the flipside, people may save cash rather than spend it when the economy slows. This leads to more gold being produced which decreases its value.
It is this reason that gold investing makes sense for businesses and individuals. If you invest in gold, you'll benefit whenever the economy grows.
You'll also earn interest on your investments, which helps you grow your wealth. Plus, you won't lose money if the value of gold drops.
What is the benefit of a gold IRA?
The benefits of a gold IRA are many. It's an investment vehicle that allows you to diversify your portfolio. You control how much money goes into each account and when it's withdrawn.
You also have the option to transfer funds from other retirement plans into a IRA. If you are planning to retire early, this makes it easy to transition.
The best part? You don’t need to have any special skills to invest into gold IRAs. These IRAs are available at all banks and brokerage houses. You don't have to worry about penalties or fees when withdrawing money.
But there are downsides. Gold is historically volatile. Understanding why you want to invest in gold is essential. Do you want safety or growth? Are you trying to find safety or growth? Only when you are clear about the facts will you be able take an informed decision.
If you plan to keep your gold IRA indefinitely, you'll probably want to consider buying more than one ounce of gold. One ounce won't be enough to meet all your needs. Depending upon what you plan to do, you could need several ounces.
If you're planning to sell off your gold, you don't necessarily need a large amount. You can even live with just one ounce. But, those funds will not allow you to buy anything.
Who has the gold in a IRA gold?
An individual who has gold is considered to be a “form of money” by the IRS and subject to taxation.
To be eligible for the tax-free status, you must possess at least $10,000 gold and have had it stored for at least five consecutive years.
Although gold can help to prevent inflation and price volatility, it's not sensible to have it if it's not going to be used.
If you plan to sell the gold one day, you will need to report its worth. This will affect how much capital gains tax you owe on cash you have invested.
A financial planner or accountant should be consulted to discuss your options.
How much should you have of gold in your portfolio
The amount of capital that you require will determine how much money you can make. You can start small by investing $5k-10k. Then as you grow, you could move into an office space and rent out desks, etc. You don't need to worry about paying rent every month. Rent is only paid per month.
Also, you need to think about the type of business that you are going to run. In my case, I am running a website creation company, so we charge clients around $1000-2000/month depending on what they order. Consider how much you expect to make from each client, if you decide to do this kinda thing.
Because freelance work pays freelancers, you won't likely get a monthly income if you do freelance work. So you might only get paid once every 6 months or so.
You must first decide what kind and amount of income you are looking to generate before you can calculate how much gold will be needed.
I recommend starting with $1k to $2k of gold, and then growing from there.
Statistics
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- You can only purchase gold bars at least 99.5% purity. (forbes.com)
- If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
External Links
wsj.com
- Saddam Hussein’s InvasionHelped Uncage a Bear In 1989 – WSJ
- Are you interested in keeping gold in your IRA at-home? It's Not Exactly Legal – WSJ
forbes.com
- Gold IRA: Add some sparkle to your retirement nest egg
- Understanding China's Evergrande Crisis – Forbes Advisor
law.cornell.edu
- 7 U.S. Code SS7 – Designation board of trade as contract marketplaces
- 26 U.S. Code SS 408 – Individual retirement funds
investopedia.com
How To
The History of Gold as an Asset
Gold was a currency from ancient times until the early 20th century. It was universally accepted due to its purity and divisibility, beauty, scarcity, and durability. In addition, because of its value, it was traded internationally. There was no international standard for measuring gold at that time, so different weights and measures were used around the world. For example, in England, one pound sterling was equal to 24 carats of silver; in France, one livre tournois was equal to 25 carats of gold; in Germany, one mark was equal to 28 carats of gold; etc.
The United States began issuing American coin made up 90% copper, 10% zinc and 0.942 fine-gold in the 1860s. This led to a decrease of demand for foreign currencies which in turn caused their prices to rise. The price of gold dropped because the United States began to mint large quantities of gold coins. The U.S. government was unable to pay its debts due to too much money being in circulation. They sold some of their excess gold to Europe to pay off the debt.
Many European countries didn't trust the U.S. dollars and started to accept gold for payment. However, many European nations stopped using gold to pay after World War I and started using paper currency instead. The price of gold rose significantly over the years. Even though the price fluctuates, gold is still one of best investments.
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By: Stephen Flood
Title: Brace Yourself for the Impact
Sourced From: news.goldcore.com/brace-yourself-for-the-feds-impact/
Published Date: Thu, 22 Sep 2022 11:39:24 +0000
