The threat of crisis is growing
May 4, 2023 12:22 pmVideo
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Yesterday, the Federal Reserve concluded the FOMC meeting. As expected, the interest rate was raised by 0.25%. Now the base rate is between 5% and 5.25%. Most importantly, at the next FOMC meeting in June, after 10 consecutive rate hikes, the Fed hinted that they may pause further rate increases.
Such a decision will allow the Federal Reserve to assess the damage from recent bank failures, as well as measure inflation levels that will lag behind the Fed’s rate hikes, and wait for a resolution to the U.S. debt ceiling dilemma. The Fed’s aggressive monetary policy with rate hikes has ultimately reduced inflation but also caused negative consequences.
Of course, if the aggressive policy remains in force and rates continues to be raised, such a decision will not only have a detrimental impact on the economy but also have less effect on reducing inflation than before. As inflation has already reached an area where many sectors have normalized and remain stable, further rate increases will not have the expected effect of reducing inflation. Instead, it will harm the financial system. The issues of the banking crisis and the debt ceiling remain unresolved.
Now, after the conclusion of the FOMC meeting and the determination of the interest rate, it is worth focusing on two important events that could lead to unthinkable economic shocks. This is the political confrontation over raising the debt ceiling between Democratic and Republican lawmakers.
It is a concern that the government will not be able to fulfill its obligations and the lack of agreement between the two ruling parties. The gap between Democrats and Republicans has never been so wide that it is difficult to reach a compromise.
And naturally, the banking crisis is causing anxiety, as there is still a possibility that a larger number of banks will become insolvent.
In combination, the unresolved debt crisis and the likelihood that more banks will become insolvent will have a very detrimental impact on the economy.
These factors will support the growth of gold and all precious metals.
The material has been provided by InstaForex Company – www.instaforex.com
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