Gold, Maga-nomics and the Dot Plot
Thursday, 3/20/2025 12:42
Record gold price as Trump starts on the Fed...
WHEN your central bank hurts the economy, it's good,
writes Adrian Ash at BullionVault in this view sent to Weekly Update readers on Tuesday and now updated post-Fed.
Painful, but good. Or so central bankers always say.
But if your elected government does it? Then it's bad, pure and simple.
Or so the anti-Trump media keep saying. Maybe the markets are saying the same with
gold up above $3000 per ounce.
"The proposition that Trump's policies might hurt the economy isn't liberal propaganda,"
bleats MSNBC.
"Last year, Elon Musk literally predicted his and Trump's economic policies
would crash the economy."
Such whining isn't new. The 'liberal media' began
hyperventilating about Trump 2.0 causing a recession as far back as 2023.
And lo. Now the MAGA White House agrees with them!
"Howard Lutnick, the commerce secretary, has said Mr.Trump's policies are 'worth it'
even if they cause a recession," gasps the
New York Times.
"Scott Bessent, the Treasury secretary, has said the economy may need a 'detox period' after becoming dependent on government spending.
"And Mr.Trump has said there will be a 'period of transition' as his policies take effect."
A little pain, so much gain. Right, America?
US voters may have backed Trump's MAGA platform in November. But US consumers are suddenly gloomy about MAGA-nomics.
Very gloomy. Very
suddenly.
That, at least, is what the University of Michigan's first survey report for March 2025 said last Friday.
Just ahead of that news,
gold broke $3000 for the first time in history (if not yet the last).
Longer-term, and on a 5-year horizon, the level of US consumer confidence has gone in the opposite direction to the price of gold...adjusted for US inflation...almost 80% of the time since 1978. (Our chart above inverts the real price of gold, the better to show the connection.)
So more gloom *should* be great for gold. And hurrah! Here come Trump, Bessent, Lutnick and Musk to destroy jobs and growth.
"Amid signs of investor unease, the
Trump administration insists it aims to help Main Street, not Wall Street," says the
Washington Post...
"...but the erratic pace and tone of Trump 2.0 is taking a toll on the stable economy the President inherited...
"...denting growth prospects and leaving Americans more downbeat than they have been in years."
Boo to Trump, in other words. Re-shoring factory jobs and cutting the federal debt might sound great long term. But don't try any shortcuts. You might hurt the economy.
And that tactic belongs to the central bank!
"There will be times when the Fed takes unpopular actions that cause short-term economic pain,"
explains a political scientist like he's pulling a tooth.
"However, given the institution's influence over long-term economic stability, shielding it from political pressures is crucial to preventing the implementation of short-sighted policies that could lead to prolonged financial harm."
Got that? Central banks must cause recessions sometimes. It's vital that politicians don't try to stop them.
Or so central banks keep saying. Y'know, kinda like
US courts are now whining that they shouldn't get over-ruled by the elected Government either, citing something called 'the constitution'.
"Fed's Powell Signals US Recession May Be Price to Pay" for cutting inflation, said Bloomberg in September 2022.
"Fed needs a recession to win inflation fight," said an academic study in Feb 2023, a paper which senior Fed officials tried to "quibble" with at a seminar day that month, before agreeing "that policymakers should accept that disinflation
is likely to be costly" in terms of jobs.
"No exit ramp for Fed's Powell until he creates a recession," agreed CNBC in March 2023, quoting yet another economist repeating the central bankers' consensus.
Never mind they were wrong. The highest US interest rates in more than 2 decades
coincided with inflation dropping sharply (although not as low as the Fed's 2.0% target) while failing to provoke a recession.
But that's not how it's meant to go. The way that monetary policy is supposed to work, capping or curbing inflation, is by hurting the economy. Or so everyone agrees. It puts people out of work, thereby cooling consumer and industrial demand...
...taking the heat out of inflation. Which is all for the good, in the long run. Never mind if it costs you work or your business.
Whereas with Trump...?
Wednesday saw the Federal Reserve...led by 'high-rates' Powell...leave overnight interest rates unchanged while unveiling its latest forecasts for inflation, unemployment, the economy, and interest rates.
Looking ahead, the Federal Reserve also issued its new 'dot plot' forecasts for where committee members expect US interest rates to end 2025. On average, they left that prediction at 3.9%...
...down 0.4 points from today...
...and the same forecast which the Fed's dot plot gave back in December, when it
hiked that prediction by half-a-point from September's guess.
Simply put, rates are going to stay higher than the Fed thought on the eve of the election, and the cost of borrowing is also going to stay higher than both inflation and GDP growth, even though the Fed now thinks that the pace of US economic expansion will weaken (what with Trump in the White House and all) while it also thinks inflation will accelerate (what with Trump in the White House and all).
No surprises for guessing the President's reaction to this inflation-growth stand off...
...April 2nd being
D-Day for Trump's raft of import tariffs on goods from pretty much every country he hasn't yet hit, plus extra tariffs on those already hit.
"He was supposed to be a low-interest-rate guy,"
said Trump about Powell back in 2018, mid-way through the real-estate celebrity's first term in the White House.
"It's turned out that he's not...I'm very unhappy."
15 months later, the same moan, even as the Fed began cutting interest rates.
"People are VERY disappointed in Jay Powell and the Federal Reserve," Trump said. "The Fed has called it wrong from the beginning."
No such vitriol just yet. And to be clear: Gold hasn't cared much about Fed policy over the past couple of years.
High rates failed to crush it. Falling rates failed to send it soaring anywhere close to
the boost which gold got from China's mini-mania last spring or
the approach of Trump's re-election last autumn.
What's more, gold's run of fresh record highs has come as US investor demand for gold has gone AWOL, failing to rebound like Western European flows have started to do.
But now that Trump has returned, he's fighting against unelected bureaucrats while smacking the political-and-economic consensus square in the face.
And whatever your vote, a government that
openly argues with its central bank (never mind the courts or the media) pretty much demands that you buy gold
to protect yourself.
I mean, just ask Turkey.
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