I attended the Mines and money conference in December and listened to the Grant Williams presentation. It's very insight and would highly recommend everyone listens to it. Williams talks about the reaction to Donald Trump's election and joins a series of dots that may lead to the end of the petrodollar system and a new place for gold in the global monetary system. It's a MUST listen imo.
Daily Gold Chat
Good article here:
Changes in the federal funds rate will always affect the U.S. dollar. When the Federal Reserve increases the federal funds rate, it normally reduces inflationary pressure and works to appreciate the dollar.
Since June 2006, however, the Fed has maintained a federal funds rate of close to 0%. In the wake of the 2008 financial crisis, the federal funds rate fluctuated between 0 and 0.25%.
The Fed used this monetary policy to help achieve maximum employment and stable prices. Now that the 2008 financial crisis has largely subsided, the Fed will look to increase interest rates to continue to achieve employment and to stabilize prices.
Inflation of the U.S. Dollar
The best way to achieve full employment and stable prices is to set the inflation rate of the dollar at 2%. In 2011, the Fed officially adopted a 2% annual increase in the price index for personal consumption expenditures as its target. When the economy is weak, inflation naturally falls; when the economy is strong, rising wages increase inflation. Keeping inflation at a growth rate of 2% helps the economy grow at a healthy rate.
Adjustments to the federal funds rate can also affect inflation in the United States. The Fed controls the economy by increasing interest rates when the economy is growing too fast. This encourages people to save more and spend less, reducing inflationary pressure. Conversely, when the economy is in a recession or growing too slowly, the Fed reduces interest rates to stimulate spending, which increases inflation.
During the 2008 financial crisis, the low federal funds rate should have increased inflation. Over this period, the federal funds rate was set near 0%, which encouraged spending and would normally increase inflation.
However, so far in 2015, inflation is still well below the 2% target, which is contrary to the normal effects of low interest rates. The Fed cites one-off factors, such as falling oil prices and the strengthening dollar, as the reasons why inflation has remained low in a low interest environment.
The Fed believes that these factors will eventually fade and that inflation will increase above the target 2%. To prevent this eventual increase in inflation, hiking the federal funds rate reduces inflationary pressure and cause inflation of the dollar to remain around 2%.
Appreciation of the U.S. Dollar
Increases in the federal funds rate also result in a strengthening of the U.S. dollar. Other ways that the dollar can appreciate include increases in average wages and increases in overall consumption. However, although jobs are being created, wage rates are stagnant.
Without an increase in wage rates to go along with a strengthening job market, consumption won’t increase enough to sustain economic growth. Additionally, consumption remains subdued due to the fact that the labor force participation rate is close to its 35-year low. The Fed has kept interest rates low because a lower federal funds rate supports business expansions, which leads to more jobs and higher consumption. This has all worked to keep appreciation of the U.S. dollar low.
However, the U.S. is ahead of the other developed markets in terms of its economic recovery. Although the Fed raises rates cautiously, the U.S. could see higher interest rates before the other developed economies.
When the Fed increases interest rates, it attracts foreign funds to the U.S. This leads to a natural appreciation of the U.S. dollar, even in light of stagnant wages and low domestic consumption.
Overall, under normal economic conditions, increases in the federal funds rate reduce inflation and increase the appreciation of the U.S. dollar. In the 2015 economic environment, increases in interest rates will slow the growth of inflation to the 2% benchmark and increase appreciation.
As one of the important TA indicators, P&F Analysis should be also consider along with other indicators before taking a position.
Nonetheless, P&F is calling for the US$ to rise to 104.88. However, no time frame is given,
> The ever growing debt load to finance this so called economic growth. $6 worth of new debt to get $1 of real growth. To me the USA has become a weapons producer for exports at the expense of the taxpayer. Agriculture production that requires taxpayer subsidies. Food that makes people sick and fat, overpriced so called wonder drugs and so called improved healthcare, an ever growing number of brainwashed people, who don't know from right or wrong. Especially those that represent us in government.
Yellen says, focus on investments that would raise productivity and the standard of living. To do that we have to have honest money, and we don't have that. The Fed can easily monetize whatever new Treasury debt (spending $6 to get $1), but therein lies the problem. If U.S. debt accumulation or interest rates rise too much (both will rise), the Fed's job becomes much harder and a lot more expensive.
The problem here is that financial crashes are not anticipated. Complacency fools a lot of people. For a long time everything looks rosy and all of a sudden within days everything that can go wrong happens.
What should this mean for Gold/Silver/Commodities? I believe that I understand that this bios is negative stocks however at the moment nothing seems to derail the idiotic quest for new stock market highs.
Federal Reserve Chair Janet Yellen said more interest-rate increases will be appropriate if the U.S. economy meets the central bank’s outlook of gradually rising inflation and tightening labor markets.
“At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she told the Senate Banking Committee in prepared remarks Tuesday.
Yellen’s semiannual report on monetary policy is her first since Donald Trump became president vowing to boost U.S. growth, which could push the Federal Open Market Committee to pick up the pace of rate hikes if such steps fan higher inflation. She reiterated that falling behind on inflation could harm to the economy and possible cut short the expansion.
“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she added.
Read Yellen’s Opening Statement
Yellen gave no indication of the timing of the next hike in her prepared remarks. Investors see about a 34 percent chance of an increase at the next meeting of the FOMC on March 14-15, up from about 30 percent before she spoke. Treasuries fell, U.S. stocks pared losses and the dollar rose.
The Fed, which has only raised rates twice since the recovery began in 2009, has penciled in three quarter-point rate increases in 2017, as the economy closes in on the central bank’s goals for maximum employment and 2 percent inflation.
Yellen said the Fed panel’s outlook for a “moderate pace” of growth is based on continued stimulative monetary policy, and a pick-up in global activity. She did not mention Trump administration proposals as a key element in the central bank’s forecast.
In response to questioning, Yellen said Fed policy makers will be discussing in coming months their strategy for the balance sheet, which swelled to about $4.5 trillion after the crisis from less than $900 billion in 2006 as the central bank sought to hold down long-term market rates.
She said she expects the balance sheet to end up being “substantially smaller” than it is now, with policy makers wanting to shrink in an “orderly and predictable way.” The Fed doesn’t want to use the balance sheet as an active policy tool and it should eventually be comprised primarily of U.S. Treasuries, she said.
On the economy, she said in her opening statement that consumer spending has continued to rise at a “healthy pace,” supported by gains in household income and wealth, favorable sentiment and low rates. The recent rise in mortgage rates “may impart some restraint” on housing markets, she said.
The Fed chief said changes in fiscal and economic policies could affect the outlook, though she declined to speculate how, adding that it’s “too early to know” what policy changes will be put in place. She urged lawmakers to focus on investments that would improve living standards and raise productivity while noting that she hoped any changes would keep fiscal accounts “on a sustainable trajectory.”
Trump’s victory could expose the U.S. central bank to reforms favored by his Republican party, which still controls both chambers of Congress. Yellen could previously rely on President Barack Obama, a Democrat, to shield with his veto any perceived encroachment on Fed independence.
The shift in power may force her to engage more with lawmakers than in the past. Republicans want to roll back post-crisis banking regulations enshrined in the Dodd-Frank Act, arguing it hurts growth by making credit scarce for small businesses. While Yellen did not mention financial regulation in her remarks, lawmakers had many questions on the issue as the hearing progressed.
In his opening remarks at the hearing, Senate Banking Committee Chairman Mike Crapo said “it is time to reassess what is working and what is not” with financial regulations, which need to “strike the proper balance” between the safety of the system and economic growth.
Trump’s opportunity to influence regulatory policy improved last week when Fed Governor Daniel Tarullo, who oversees bank regulation, announced his departure in early April. It also means that Trump can fill three of the seven Fed Board seats, where there are two existing vacancies, while Yellen’s own term as chair ends in February 2018.
Yellen gave an upbeat description of the labor market saying gains in recent years “have been widespread.” The unemployment stood at 4.8 percent in January.
The personal consumption expenditures price index, the Fed’s preferred price benchmark, rose 1.6 percent in the 12 months through December.
One might also note that during the inversion commodity prices were soaring. As the dollar came off its low on its current trek to once again out pace the Euro, so fell commodity prices.
Clearly, the Euro currency has run inverse to the US$ Index for the past 20 years (i.e. since 1997). Furthermore, the following chart not only demonstrates the inverse relationship, but shows that mid-2014 the US$ Index has been in a bull market…as the Euro currency suffers a pronounced bearish down trend.
Each established trend suggests a continued US$ rise as the Euro relentlessly declines during 2017. In fact the Euro currency may even evaporate if the Euro Union (EU) dissolves…as is quite likely if more countries abandoned the EU.
(Rorschach Test Definition: https://en.wikipedia.org/wiki/Rorschach_test )
For our German readership: The following was published today in Germany's most popular Gold Site: