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Federal Reserve Raises Rates By One Point And Explains Next Move As Gold Rallies Hard – Mike Swanson

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Yesterday, the Federal Reserve raised interest rates by one quarter of a point. The US stock market initially rallied on that news, but then dumped into the close, with the DOW falling over 500 points, as Federal Reserve Chairman Jerome Powell held a press conference to explain the Federal Reserve views and what it is thinking may happen with its next move at its May FOMC meeting.

Gold, though, soared into the close. Gold has been outperforming the US stock market since New Years of 2022, as you can see from gold/spx ratio on the bottom of this chart.

Gold is now becoming a necessity to have in a portfolio, from both a diversification and a performance booster, as we are at the end of the current interest rate hiking cycle, stress is showing up in the banking system, and inflation remains high.

A few weeks ago, expectations were that the Federal Reserve would be raising rates again at its next couple of meetings, but with the interventions the Federal Reserve and Treasury had to make in reaction to stress in the regional banking system those odds greatly diminished going into yesterday’s meeting. The CME Fedwatch Tool now only has a 49.9% chance of an additional hike in May.

Jerome Powell explained why at the press conference. He stated that the Federal Reserve “may” raise rates at that next meeting. He didn’t say they would or would not, but just that they “may” do so. He said the reason why is that there is now concern with the problems encountered with the regional banking system, and that many of his fellow Fed board members believe that banks are going to tighten up on lending to such a point that it will be like there already had been additional rate hikes in the system.

This is a downgrade in the Federal Reserves outlook on the economy.

I turned bullish on the stock market in January, after having been bearish starting back in the summer of 2021, but turned to neutral once the banking news hit two weeks ago. It’s just hard to have a continued sustainable expansion when the banking system is under stress.

And yet the inflation threat remains.

That’s why gold and silver are both coming alive again.

Here is what a lot of other smart traders are thinking.

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