Every month, the Bureau of Labor Statistics gathers crucial data from thousands of US companies and consumers. They compile this data into an important inflation indicator called the Consumer Price Index (CPI).
The Fed watches the CPI closely. And if the latest data is correct, the Fed and the US economy have entered uncharted inflationary territory.
Historically, the Fed has cooled inflation by raising interest rates. Yet, despite 10 rate hikes so far, the annual CPI is up 4.9% as of June this year — well above the Fed’s 2% target.
In response, the Fed is considering an 11th hike to help bring inflation down.
But it may not be enough as Fed Chief Jerome Powell says “…the process of getting inflation back down to 2% has a long way to go.”
In theory, the flood of recent rate hikes should slow down economic activity, which lowers the rate of inflation. And since high interest rates increase the cost of borrowing, the Fed would expect to see consumer spending drop.
But this hasn’t yet happened. Although prices remain elevated and high interest rates have made it challenging to access credit, CPI data shows consumers continue to pour money into goods, services, food, energy and entertainment.
In fact, the Fed’s recent economic data show spending has increased since January. And this flood of consumer cash accounts for a staggering 68.3% of the nation’s gross national product.
The reason for increased consumer spending in this challenging economy is unclear, however…
According to Dr. David Phelps, author of Inflation: The Silent Retirement Killer, it may have everything to do with post-pandemic optimism:
“Coming out of the pandemic, people were generally more optimistic because they were able to return to their normal lives, having considerable money courtesy of Congress. However, with the depletion of these funds and rising interest rates and credit card payments, people are beginning to feel the pinch, yet they’re still living as if it’s ‘business as usual.’”
But it’s not business as usual, is it?
Beyond the data, calculations and charts…
Americans can see and feel inflation at the pump, the grocery store and just about everywhere else.
And according to The New York Times, “It’s ‘more expensive to live,’ and workers are tapping 401(k)s for help.” They also note “Retirement plan administrators are noting an uptick in hardship withdrawals.”
Data from the U.S. Bureau of Economic Analysis supports this observation, revealing the personal savings rate of Americans hit a peak of 34% during the pandemic but has now dwindled to 5%.
In other words, many people are pulling from their savings to pay for day-to-day expenses.
Meanwhile, inflation continues to erode the dollar’s purchasing power.
And now, as the US faces a $31.5 trillion debt, the federal government may have no choice but to keep printing and spending to service that debt… which may lead to more inflation and more lost purchasing power for Americans.
So, what can the Fed do?
Economists say further interest rate hikes could help tame inflation, but they could also trigger a recession.
At this point, the Fed is debating its next move. And Fed chief Powell says the central bank may forego another rate hike during their meeting in mid-June. So their move could be “no move.”
What effect the Fed’s decision may have on inflation and the CPI is unknown.
Forbes reports “The New York Fed recession probability indicator suggests there is a 68.2% chance of a U.S. recession sometime in the next 12 months. That’s the highest reading in more than four decades. But so far, the U.S. labor market remains strong, and economists are divided on whether or not a recession is inevitable in this unusual economic environment.”
In other words, what happens next is uncertain.
However, we know gold has historically soared during uncertain times.
Of course, past performance doesn’t guarantee future results.
But it’s good to remember…
During The Great Inflation of the 1970s, the price of gold soared 2,300%.
Good news! You may be able to shift a portion of your 401(k), IRA, TSP and other savings vehicles into history’s most trusted long-term inflation hedge: gold.
To learn more about your options so you can make informed decisions, click here to get a FREE copy of the 2023 Gold Alliance Gold Information Kit personalized to match your needs. Or you can dial toll-free 888-529-0399 to speak with a friendly, patient and experienced Gold Specialist who can answer all your questions. There’s no cost or obligation.