Economists warn: The Federal Reserve has limited ability to control inflation!
Economists warn that the Federal Reserve has limited control over inflation and cannot influence factors such as supply and demand, geopolitical events, etc. This assessment has raised concerns among economists about the Fed's strategy. The rise in gold prices is influenced by sustained inflation and large purchases by central banks around the world. Central banks in countries such as China, India, and Turkey are diversifying their foreign exchange reserves, driving up the price of gold. Central banks in various countries have reached a historical high in gold purchases, with China and India taking the lead. This trend is expected to continue
Former Demos think tank senior researcher Nomi Prins said, "The Federal Reserve's ability to control inflation is limited, and this sign is becoming increasingly clear."
She said, "The Federal Reserve cannot control inflation, whether the inflation rate is above 2%, slightly below 2%, or reaches 3% or 4%, the Federal Reserve actually cannot influence factors that drive inflation such as supply and demand, geopolitical events, or other factors." This assessment reflects economists' growing concerns about the Federal Reserve's existing strategies.
Vahan Roth, Executive Director of Swissgrams AG, pointed out that the Federal Reserve is still far from "loose monetary policy." He wrote, "Although price pressures in several developed economies have fallen from near double-digit highs in recent years, countless households and businesses still face significant pressure."
Prins highlighted the actual consequences of the Federal Reserve's interest rate hike cycle on the real estate market. She stated, "As the Federal Reserve raises interest rates, the average cost of mortgages has almost doubled in the past few years. This means that people need to pay higher mortgages before paying any other expenses, or pay higher rent for someone else's mortgage."
According to data from Freddie Mac, the average interest rate for a 30-year fixed-rate mortgage has risen to 6.5%, affecting homeowners across the United States.
Prins also discussed the impact of inflation on gold, believing that persistent inflation and the significant purchases of gold by central banks worldwide are driving the rise in gold prices.
She said, "Last year, the price of gold was around $1919, and now we see a price of around $2370. Why? Because inflation has been persistent, and we know central banks around the world have been increasing their purchases of gold, which has boosted demand for gold."
Central banks in countries such as China, India, and Turkey are diversifying their foreign exchange reserves, reducing their dependence on the US dollar, further driving up the price of gold. A report from the World Gold Council stated that in the first half of 2024, central banks' gold purchases reached a historical high, with China and India leading the way.
Prins stated, "Apart from the past few months, China has been buying gold for 16 consecutive months, and India has been steadily increasing its gold purchases. Turkey and many other emerging market countries are shifting their trade relationships from being priced in dollars to diversification, and this trend will continue."