When Will the Fed Throw in the Towel on Rate Hikes?

The Federal Reserve finally stopped referring to inflation as “transitory” earlier this year and got serious about trying to control the painful rise in prices it has caused. Officials have jacked the Fed funds rate up by 3% since March.

Thus far they have been willing to inflict pain upon financial markets. The S&P 500 lost roughly 20% of its value since the end of March.

The aggressive tightening has also pushed the Federal Reserve note “dollar” higher relative to other major currencies.

Screaming dollar

Some of the pain inflicted by the Fed is being exported to Japan, China, and Europe. Other central banks have been slower to tighten monetary policy because economies there are even more fragile than in the U.S.

Lots of precious metal investors were betting on inflation. While they certainly got that right, in a perverse turn of events, it didn’t matter – at least not yet.

They didn’t anticipate Wall Street money managers, and the trading machines they oversee, would robotically focus on the dollar’s foreign exchange rate, and not the Consumer Price Index.

It appears higher paper gold and silver prices will have to wait for a trend reversal in the Dollar Index (DXY) or until speculators start worrying about actual inflation and reprogram their machines. The DXY probably won’t be headed lower until Fed bankers change course on monetary policy.