At that meeting, FOMC members overwhelmingly voted to lower the federal funds rate by 25 basis points, to a new range of 4.5–4.75 percent, signaling further loosening of restrictive monetary policy.

The meeting summary indicated that officials are confident that inflation is moving sustainably toward the institution’s objective of 2 percent. The Fed could rapidly ease policy if there were sudden weakness in the labor market or the broader economy, the document said.

“In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes stated.

Meeting participants did express uncertainty regarding how low interest rates need to be before touching the neutral rate that neither stimulates economic activity nor halts growth.

“Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually,” the minutes said.

Looking ahead, Fed policymakers said that incoming data are consistent with the central bank’s 2 percent inflation target. They noted that higher shelter costs bolstered recent higher readings.

“Participants cited various factors likely to put continuing downward pressure on inflation, including waning business pricing power, the committee’s still-restrictive monetary policy stance, and well-anchored longer-term inflation expectations,” it added.

Fed Chair Jerome Powell told reporters at the post-meeting press conference earlier this month that the road to 2 percent inflation may be “bumpy” with more bumps in the road.

As for the U.S. economic landscape, participants concluded that downside risks to the labor market and wider economy decreased.

In addition, staff projected that economic conditions would remain solid and growth projections would be higher than in the previous assessment.

Tim Barkin, president of the Federal Reserve Bank of Richmond, recently expressed caution over the labor market but was optimistic about inflation.

“The labor market might be fine, or it might continue to weaken,” Barkin said in prepared remarks to the Baltimore Together Summit on Nov. 12.

“Inflation might be coming under control, or the level of core might give a signal that it risks getting stuck above target.”

Market Reaction

Financial markets registered tepid gains toward the closing bell on Nov. 26, with the leading benchmark indexes up by as much as 0.4 percent.

Yields in the U.S. Treasury market attempted to reverse the previous session’s sharp decline. The benchmark 10-year yield topped 4.3 percent. The two-year yield was flat at 2.5 percent, while the 30-year bond surged to 4.48 percent.

The greenback extended its gains. The U.S. dollar index, a gauge of the greenback against a basket of currencies, recorded a modest increase and added to its year-to-date rally of 5.6 percent.

Policy minutes did little to change the market’s assessment of next month’s outcome.

“The minutes did nothing to alter my view that the policy rate is going to be adjusted lower next week and will continue to do so through the next calendar year,” Jamie Cox, managing partner for the Harris Financial Group, said in a note emailed to The Epoch Times.

According to the CME FedWatch Tool, investors are mostly penciling in a quarter-point rate cut.

The rate-cutting cycle will persist throughout 2025, though Fed easing might not be as aggressive, says Jeffrey Roach, the chief economist at LPL Financial.

“In our view, after weeks of markets pricing in too many rate cuts throughout 2025, Fed rate cut pricing is now better aligned with economic data,” Roach said in a note emailed to The Epoch Times. “Currently, markets still expect the Fed to cut rates below 4 percent by the end of 2025.”

The FOMC will hold its next two-day policy meeting on Dec. 16–17.

Treasury International Capital (TIC) data published on Nov. 18 show foreign investors purchased $169 billion in U.S. government bonds in September, totaling a record $8.673 trillion.

Foreign investors bought a mix of short- and long-term bonds. Treasury bills—maturities between 30 days and 1 year—continue to appeal to bond investors, providing yields as high as 4.6 percent.

Japan and China, the two largest holders of U.S. debt, trimmed their holdings in September.

Tokyo erased about $6 billion, lowering its portfolio of Treasury securities to $1.123 trillion. Beijing reduced its holdings of U.S. government bonds by more than $2 billion to $772 billion.

While China has steadily decreased its exposure to Treasurys over the past several years, its holdings have changed little since September 2023.

Belgium ($41 billion), the United Kingdom ($21 billion), France ($16 billion), and Singapore ($9 billion) were the leading buyers, TIC figures show.

Hong Kong was the only other foreign market to register a nearly $3 billion decline.

The trend of foreign investment into U.S. Treasury securities has been unsurprising, given their vast demand at auctions over the last several months.

During the $42 billion auction of 10-year bonds on Nov. 5, indirect bidders—commonly foreign entities—purchased 62 percent of the supply. Direct bidders—domestic investors—bought less than a quarter of the issued bonds.

Foreign investors also acquired nearly two-thirds of the supply of 30-year bonds at the $25 billion auction on Nov. 6.

The yields in the United States bond market are some of the highest in the world. The U.S. Treasury market is also one of the largest and most liquid corners of international financial markets. Investors are hungry for yields with central banks unwinding their restrictive policy stances and launching a new easing cycle by cutting interest rates.

Despite the Federal Reserve following through on its rate-cut endeavors, Treasury securities have remained elevated. The benchmark 10-year Treasury yield, for example, has climbed nearly 80 basis points since the Fed lowered the federal funds rate for the first time in more than four years in September. As of Nov. 19, the 10-year bond is hovering at about 4.4 percent.

Treasury yield increases have also helped support the U.S. dollar.

The U.S. Dollar Index (DXY), a gauge of the greenback against a weighted basket of currencies, has surged nearly 2 percent over the past month, lifting its year-to-date gain to close to 5 percent. It also rallied to a one-year high of above 107.00 on Nov. 14.

The international reserve currency has rocketed on the futures market recently, shifting Fed policy expectations, with investors penciling only three quarter-point rate cuts by the end of next year, according to the CME FedWatch Tool.

“The potential for fewer cuts from the Fed and a more dovish ECB [European Central Bank] has been a big factor behind the dollar’s advance over the last few months,” said Adam Turnquist, the chief technical strategist at LPL Financial, in a note emailed to The Epoch Times.

Charles Seville, the senior director at Fitch Economics, believes the ECB will reduce interest rates faster amid weakening economic data.

“Although unemployment has yet to rise, labour markets are cooling and wage pressures subsiding,” Seville said in a research note last month.

“Past monetary tightening is clearly still affecting the economy. The ECB appears concerned that eurozone economic growth will undershoot its September forecasts, putting more downside pressure on inflation when it’s already close to target.”

The rate-setting Federal Open Market Committee will hold its next two-day policy meeting on Dec. 17 and 18.

The U.S. dollar’s future direction will also depend on Wall Street’s confidence that President-elect Donald Trump will extend the expiring Tax Cuts and Jobs Act and enact his sweeping tariff plans.

While a strengthening dollar benefits consumers and importers, it can also harm domestic companies that export their goods and services to foreign markets. The president-elect and his team have previously questioned the long-standing strong-dollar policy as they try to resurrect U.S. manufacturing.

“We have a big currency problem,” Trump told Bloomberg Businessweek this past summer, calling it a “tremendous burden” on U.S. businesses.

“Nobody wants to buy our product because it’s too expensive.”

However, Trump also pledged to protect the dollar hegemony and its chief reserve currency status, telling an audience of business leaders at the Economic Club of Chicago in October that the country could transition to “third-world status” if it the king dollar were dethroned.

Since the global financial crisis of 2008–09, central banks have been significant gold buyers, and their investments are paying off. These institutions are striking gold as prices have notched more than two dozen record settlements this year.

The metal has rallied about 30 percent in 2024, rising to as high as $2,708 per ounce. Its sister metal commodity, silver, has also performed well so far this year, surging 32 percent, to $32 an ounce.

Precious metal prices have rocketed on several factors.

Over the last 12 months, the U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, has slumped 3.5 percent. A weaker buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.

Despite its recent uptick, the benchmark 10-year Treasury yield has weakened by a full percent since November 2023 on Federal Reserve policy expectations. This has diminished the opportunity cost of holding non-yielding bullion.

Financial markets have witnessed an invasion of gold bugs, bulls that have ushered in precious metal euphoria to the trading floor of the New York Stock Exchange.

But central banks have ostensibly been ahead of the pack.

According to data compiled by the World Gold Council, central banks acquired 1,037 tons of gold last year, the second-highest annual purchase in history. This came one year after the institutions purchased a record high of 1,082 tons.

In August, central banks reported net purchases of eight tons, led by the National Bank of Poland, the Central Bank of the Republic of Turkey, and the Reserve Bank of Turkey.

But while central-bank purchases have significantly increased over the last three years, this has been a long-term trend, says Joseph Cavatoni, a senior market strategist at the World Gold Council.

“It’s a 14-year trend that’s basically been playing out since the global financial crisis,” Cavatoni told The Epoch Times.

“[There] has been a real desire to diversify their holdings and add the component of gold to the portfolio to achieve a better performance outcome.”

Though purchasing sizes have slowed recently, central banks anticipate adding more gold to their reserves in the coming years.

A 2024 World Gold Council survey showed that 81 percent of central banks will increase their gold holdings over the next 12 months. Looking ahead to the next five years, 66 percent of central banks think gold’s share of their overall reserves will be “moderately higher.”

In today’s “increasingly uncertain global economic environment,” the trends make sense, says Matthew Jones, a precious metals analyst at Solomon Global.

“Central banks are increasing their gold purchases as a strategy to diversify reserves, hedge against inflation, protect themselves from geopolitical risks, and reduce reliance on the U.S. dollar,” Jones told The Epoch Times. “Gold’s historical role as a stable and universally accepted asset makes it an attractive option, especially in an increasingly uncertain global economic environment.”

The U.S. dollar hegemony might play a vital role in central banks’ ferocious gold appetite.

Gold in a Reforming Global Monetary Order

Changes to the international monetary order have been unfolding, with central banks gradually transitioning away from the U.S. dollar.

According to the International Monetary Fund’s Currency Composition of Official Foreign Exchange Reserves data, the U.S. dollar share of worldwide foreign-exchange reserves is 58 percent, down from 72 percent in 2000.

“Recent data from the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) point to an ongoing gradual decline in the dollar’s share of allocated foreign reserves of central banks and governments,” IMF officials said in a report this past summer. “Strikingly, the reduced role of the U.S. dollar over the last two decades has not been matched by increases in the shares of the other ‘big four’ currencies—the euro, yen, and pound.”

Like gold-buying, the de-dollarization campaign has been ongoing since the Great Recession, kicking into overdrive after the outbreak of the war in Ukraine. This initiative involves countries trimming their reliance on the greenback as a reserve currency.

Leaders have been responding to the potential dollar weaponization, says Vijay Singh, the managing partner and chief investment officer at Regal Point Capital.

After the postwar Bretton Woods conference, the U.S. dollar essentially became the world reserve currency, pegging every other currency to the buck. As a result, the federal government has exploited the U.S. dollar as a tool to bolster Washington’s foreign policy, which was on full display after Russia’s invasion of Ukraine.

The U.S.-led Western alliance froze about half of the Russian central bank’s more than $600 billion in assets. It limited the Kremlin’s access to the SWIFT (Society for Worldwide Interbank Financial Telecommunications) payment system, the financial artery for financial communication.

JPMorgan Chase CEO Jamie Dimon warned that cutting Russia out of SWIFT would trigger “unintended consequences.”

“I don’t think anybody likes to be bullied,” Singh told The Epoch Times. “If you look at a lot of our foreign policy, it does involve kind of using the dollar strength globally against countries that they’re not going to forget.”

Singh says several formal efforts are underway to sidestep the U.S. dollar, including expanding the coalition of anti-dollar developing nations known as the BRICS (Brazil, Russia, India, China, and South Africa).

In August 2023, the group officially invited six other nations to join the bloc: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE), though Saudi Arabia has still yet to join. Nineteen other countries have expressed interest in becoming members.

“We value the interest of other countries in building a partnership with BRICS,” South African President Cyril Ramaphosa said in a statement. “We have tasked our foreign ministers to further develop the BRICS partner country model and a list of prospective partner countries and report by the next Summit.”

A part of the organization’s objective is to bolster bilateral trade settled in local currencies, such as the Chinese yuan, the Brazilian real, and the Indian rupee.

In the last year, many media reports have shown that countries are creating arrangements to complete bilateral trade in local currencies.

Iran and Russia finalized an agreement in December to trade in their local currencies rather than the U.S. dollar, according to Tehran’s state media. Russian Deputy Prime Minister Alexei Overchuk confirmed this past spring that 92 percent of trade settlements between Moscow and Beijing are conducted in rubles and yuan. India and Indonesia inked a deal in March to trade in local currencies.

Over the years, rampant speculation has been that BRICS members would establish a gold-backed reserve currency. To date, nothing has materialized, and experts are skeptical that it will happen anytime soon.

While discussions are likely occurring, “it’s really not a quick” fix to displace the U.S. dollar, according to Cavatoni.

“It’s quite a bit of work to get that done,” he said.

“I think there’s still the necessity for dollars to be in the middle of the mix, and there’s not a lot of viable alternatives to start a new currency, to get something that’s completely independent, to have it embedded in clearing and have it embedded in trade settlements.”

While gold is a politically acceptable instrument to nations outside the Western alliance, there are broader challenges, say State Street economists.

“Gold reserves are simply not ‘user-friendly’ in large quantities,” they wrote in a paper. “Gold needs to be stored domestically and requires an international transaction to convert it into foreign currency for payment purposes.”

“In brief,” they concluded, “gold performs well on safety but falls short on liquidity.”

A more realistic proposal would be tying gold to a stablecoin, Vingh says. This would consist of a cryptocurrency in which the digital asset’s value is pegged to a reference asset, such as the U.S. dollar or gold.

“I think that’s actually more workable, and what they might do,” he stated. “There’s so much flexibility involved with these stablecoins, theoretically.”

The next BRICS Summit later this month will take place in Kazan, Russia, and might rekindle murmurs about de-dollarization and a gold-backed currency.

Gold Prices in 2025

Will gold extend its record run into 2025? Financial experts agree that worldwide markets should brace for elevated prices.

Goldman Sachs Research forecasters prognosticate that gold should hover around $2,700 by early next year, “buoyed by interest rate cuts by the Federal Reserve and gold purchases by emerging market central banks.”
“The metal could get an additional boost if the U.S. imposes new financial sanctions or if concerns mount about the U.S. debt burden,” they said.

“Gold is our strategists’ preferred near-term long (the commodity they most expect to go up in the short term), and it’s also their preferred hedge against geopolitical and financial risks.”

Jones believes gold investors will “enjoy this current bull” entering 2025 and target a spot value approaching $2,800 in early 2025.

Supporting factors will be the same as they have been over the last couple of years.

“I think we will enjoy this current bull run as we enter into 2025 driven by: continued demand from central banks (in particular the central banks from the BRICS nations as they reduce their reliance on the U.S. dollar), persistent or increasing inflation, geopolitical uncertainty (a soft euphemism for war), currency diversification, and the risk of an economic slowdown or recession,” Jones noted.

According to Bureau of Labor Statistics data, cumulative inflation since 2019 has totaled nearly 25 percent.

But inflation figures have been understated by nearly half, resulting in cumulative growth to be “overstated by roughly 15%,” say economists EJ Antoni and Peter St. Onge.

“Moreover, these adjustments indicate that the American economy has actually been in recession since 2022,” they wrote in a new study published in Brownstone Journal.

Undercounting inflation has implications for economic growth because rapid price changes have bolstered the nominal values of a wide array of economic metrics “without resulting in any real change.”

Antoni and St. Onge cited several data points comparing nominal (non-inflation-adjusted) and real (inflation-adjusted) since January 2019.

New orders for durable goods have increased 7.5 percent (nominal) but fallen 13.4 percent (real). Retail sales have rocketed more than 23 percent (nominal) but rose 3.2 percent after adjusting for inflation. Nominal disposable personal income has surged about 35 percent, but the real rate has been just nearly 13 percent.

Nominal GDP at a seasonally adjusted annualized rate shows the national economy has soared 37.4 percent from the first quarter of 2019 to the second quarter of 2024.

The Bureau of Economic Analysis (BEA) uses the GDP Price Deflator—a tool that reduces the value of goods and services produced in the wider economy—to reflect inflation revisions. When it is applied, nominal growth declines to 13.7 percent in this five-year span.

But this is flawed, the economists stated.

“Utilizing a modified GDP deflator that includes more accurate metrics for housing, regulatory costs, and indirect costs yields a more accurate inflation measurement and therefore a more accurate valuation of real GDP,” the paper said.

Antoni and St. Onge concluded that the adjusted real GDP fell 2.5 percent from the first quarter of 2019 to the second quarter of 2024 and entered a recession in early 2022.

“Even without considering population growth and per capita GDP, the adjusted real GDP values imply that the nation entered a recession in the first quarter of 2022 and remained in that contraction through the second quarter of 2024,” they wrote.

‘Egregious Biases’ in Inflation Data

The paper aimed to address various “egregious biases in inflation statistics” to gauge an accurate assessment of inflation over the last five years.

“This matters not only because of the political salience of rising prices, but also because official inflation numbers are used to calculate real economic growth by adjusting nominal dollars to inflation-adjusted dollars,” the economists wrote.

Antoni and St. Onge noted that government inflation measurements have many shortcomings, from housing to health insurance.

U.S. home prices have accelerated to all-time highs since the pandemic, surpassing rents in the same span.

“The CPI has grossly underestimated housing cost inflation,” they wrote, highlighting that the consumer price index (CPI) fails to “actually account” for the direct cost of homeownership. Instead, federal statisticians rely on the “owners’ equivalent rent of residences,” which accounts for more than 26 percent of the CPI.

“If the costs to rent and own change commensurately over time, then this methodology will be relatively accurate,” the economists stated. “Unfortunately, the cost of owning a home has risen much faster than rents over the last four years and the CPI has grossly underestimated housing cost inflation.”

In 1983, the federal government changed its CPI inflation calculations by transitioning from tracking mortgages and housing costs to monitoring “owners’ equivalent rent.” The objective behind the modification was that the measurement would be less volatile, and officials viewed housing as an investment.

In the August CPI report, this category jumped 0.5 percent monthly and 5.4 percent year-over-year.
Measuring price changes when consumers are not directly charged for services is another challenge to accurately measuring inflation.

Health insurance is one example of this hurdle to correctly assessing inflation.

“Premiums are used both to pay for the actual cost of providing the service of insurance (risk mitigation) and for medical services and commodities,” the report said. “The CPI neglects both, and instead imputes the cost of health insurance from the profits of health insurers.”

Last month, the health insurance component of the CPI was little changed monthly and rose 3.3 percent from a year ago.

Quantifying the effects of government regulations can also be a roadblock to better understanding inflation because statistics agencies will determine prices are lower if products have improved.

“The difficulty of estimating such improvements can result in artificial cost reductions due to perceived benefits to the consumer that do not actually exist,” they said.

Solid Growth, Low Inflation Ahead: Forecasters

The U.S. government recently reported that the economy grew faster than initially reported in 2023.

The Bureau of Economic Analysis released its annual benchmark revision report last month. The changes confirmed that the GDP growth rate was 2.9 percent last year, up from the previous estimate of 2.5 percent. Additionally, growth in 2022 was revised higher by 0.6 percentage points to 2.5 percent.

Higher corporate profits, consumer spending, and business investment drove adjustments.

The first-half recession in 2022 was also canceled as the year’s second-quarter growth rate was revised higher to 0.3 percent from negative 0.4 percent.

Forecasters anticipate strong economic growth and low inflation for the rest of the year.

According to the Federal Reserve Bank of Atlanta’s GDPNow forecasting model’s estimate, the U.S. economy is expected to expand by 3.2 percent in the third quarter. The New York Fed Staff Nowcast shows comparable growth projections.

The Cleveland Fed’s Inflation Nowcasting suggests the annual inflation will ease to 2.3 percent in the next CPI report.

Speaking at the central bank’s annual Jackson Hole Economic Symposium on Aug. 23, Fed Chair Jerome Powell said at the conference of bankers, economists, and monetary policymakers that “the time has come for policy to adjust.”

“Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” Powell stated in his widely anticipated prepared remarks. “Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”

Heading into the September policy meeting, financial markets will debate the size and frequency of interest rate cuts.

Until then, many might be wondering how the Fed kicking off its easing cycle will affect their finances.

Running of the Wall Street Bulls

In the runup to Powell’s green light to a rate cut, the leading benchmark indexes have performed well and recuperated from the three-day market crash earlier this month.

Year-to-date, the blue-chip Dow Jones Industrial Average is up more than 9 percent, the tech-heavy Nasdaq Composite Index has rallied nearly 20 percent, and the S&P 500 has surged about 18 percent.

Is there more room for gains, or has Wall Street already baked a Fed rate cut into the cake?

The Fed loosening monetary policy as early as next month will likely benefit the stock market, says Robert Johnson, the chairman and CEO at Economic Index Associates and professor of finance at Heider College of Business.

“The near certainty of Fed loosening and falling interest rates in the coming meetings means that investors should be optimistic concerning their expectations for broad equity market returns,” Johnson told The Epoch Times.

Looking at market data from 1966 to 2023, he says, the S&P 500 generated a 16.4 percent return when the Fed lowered interest rates. Conversely, the index has given investors a 6.2 percent return when the central bank has raised rates.

Additionally, in a lower-rate investment climate, the top-performing sectors have been automobiles, apparel, and retail. The worst-performing sectors have been financials, consumer goods, and utilities.

“History is on investors’ side when it comes to post-rate-cut market returns,” according to Craig Fehr, the principal of investment strategy at Edward Jones, in a note.

David Materazzi, the CEO of automated trading platform Galileo FX, thinks the stock market will surge after the Fed’s rate cut and “will certainly cause stocks to burn brighter in the short term.“ At the same time, retail investors must refrain from ”being swept away by the illusion of never-ending growth.”

“This environment can create bubbles and lead to overpriced assets,” he told The Epoch Times. “The smart play is to focus on fundamentally strong stocks that can withstand market corrections when the initial euphoria fades. Don’t let the crowd’s excitement blind you to the real risks that lurk beneath the surface.”

Safe-Haven Assets

The Fed’s high-rate environment for two-plus years has been a boon for bond investors and savers—and financially damaging for borrowers.

Money markets—an arena of short-term debt securities and cash equivalents—have attracted immense investment from institutional investors and armchair traders amid yields of around 5 percent.

Billionaire Warren Buffett and his Berkshire Hathaway hold $235 billion in T-bills (maturities ranging from 4 weeks to 52 weeks), representing about 4 percent of the current supply. This is more than the Federal Reserve’s holdings.

Since the Fed’s quantitative tightening campaign was launched in March 2022, money market funds have witnessed exceptional retail interest.

However, now that the central bank is trimming its policy rate from the current 23-year high of 5.25 percent and 5.5 percent, experts warn bond investors might have to transition to long-term duration instruments.

“As investors become convinced of lower future interest rates, they may invest more into the long end of the yield curve—corporate and treasury bonds with 15, 20, or 30 years’ maturity—where interest rate moves have a greater effect on prices,” Michael Ashley Schulman, the partner and CIO of Running Point Capital Advisors, told The Epoch Times.

The benchmark 10-year yield slumped following Powell’s speech, sliding below 3.8 percent.

Cash’s reign as king over the last couple of years could end, too.

The Fed does not dictate banks’ interest rates on savings accounts, but the central bank’s benchmark federal funds rate does influence rates across the marketplace, Johnson explained.

“Savings account rates will fall as the Fed lowers rates. While the Fed doesn’t set savings account interest rates, its actions influence rates throughout the financial markets from automobile loan rates and savings account rates to mortgage rates and credit card rates,” he said.

“As the Fed lowers its target Fed funds rate, rates throughout the financial markets will fall.”

Gold is another safe-haven asset that would benefit from the institution’s looser monetary policy.

The yellow metal has been one of the world’s top-performing assets in 2024, rocketing 23 percent year-to-date to above $2,500. Although many factors have supported gold’s bull run this year, expectations that the Fed would cut rates have been a driving force because of the opportunity cost of holding non-yielding bullion, says Alex Ebkarian, the COO and co-founder of precious metals dealer Allegiance Gold.

“In a lower interest rate environment, gold tends to become more attractive compared to bonds, as the opportunity cost of holding gold decreases,” Ebkarian told The Epoch Times. “Bonds typically offer weaker returns in such scenarios. Recent adjustments, like Japan’s 0.25 percent rate change, highlight the potential impact of similar moves by the Fed.”

Beyond Interest Rates

While market watchers have concentrated mainly on interest rates, Schulman notes many other factors can influence investor sentiment and the broader financial markets.

“Economic conditions, government regulation, employment, trade and tax policies, and international conflicts also sway attitudes and outlooks,” Schulman told The Epoch Times.

This was observed earlier this month when abysmal economic data triggered recession fears.

During the August 2024 market meltdown, traders panicked about the Institute for Supply Management’s (ISM) worse-than-expected Manufacturing Purchasing Managers’ Index (PMI) and the weaker-than-expected July jobs report that activated the Sahm rule, a key recession indicator. Their concerns were alleviated after three consecutive weeks of decent initial jobless claims reports.

Before the Fed convenes its next two-day Federal Open Market Committee (FOMC) policy meeting on Sept. 17 and 18, the financial markets will digest the August jobs report, more inflation data, and another second-quarter GDP estimate.

Additionally, from the 2024 presidential election to geopolitical tensions, movements on the New York Stock Exchange might be driven by more than just interest rates moving down by 25 or 50 basis points.

In the end, savers might be disappointed in a falling-rate climate, but borrowers and investors will be ebullient in the next policy cycle.

Even with gold and silver prices at record levels, it seems likely that they haven’t hit their peak. For those who want to get in before interest rates are cut, they can back their retirement accounts with physical precious metals by reaching out to Genesis Gold Group.

House Majority Whip Tom Emmer (R-Minn.) reintroduced the Central Bank Digital Currency Anti-Surveillance State Act on Sept. 12, a bill that restricts the Federal Reserve (Fed) and member banks from issuing a digital dollar and using it to construct monetary policy.

Rep. Emmer and the 49 cosponsors fear that the federal government and “unelected bureaucrats” could exploit a CBDC to monitor Americans’ transactions and stifle political activity, effectively eliminating privacy, individual sovereignty, and free-enterprise competition.

“If not designed to be open, permissionless, and private—emulating cash—a government-issued CBDC is nothing more than a CCP-style surveillance tool that would be used to undermine the American way of life,” Mr. Emmer said in a statement, referring to China’s ruling Chinese Communist Party.

He originally introduced the bill in February, warning that the Biden administration would “create a digital authoritarian-style, surveillance-style digital dollar through an executive order.”

The upper chamber has also seen anti-CBDC legislation introduced by Sen. Mike Lee (R-Utah) and Sen. Ted Cruz (R-Texas). However, because Democrats control the Senate and the White House, political observers believe it is unlikely that these bills will pass. At the same time, proponents contend that these legislative pursuits will create more awareness about the drawbacks surrounding a CBDC.

‘Government-Sanctioned Surveillance’

The CBDC issue has also made its way to the 2024 election trail, as several candidates have expressed concern over the creation of a digital dollar.

Vivek Ramaswamy, an entrepreneur and GOP White House hopeful, described himself as a “big opponent” of CBDCs and purported that they are “a grave threat to liberty in this country.”

Florida Gov. Ron DeSantis told the Family Leadership Summit in Iowa in July that he would prohibit CBDCs if he were elected in 2024.

“Done, dead, not happening in this country,” Mr. DeSantis said. “If I am the president, on day one, we will nix central bank digital currency.”

Mr. DeSantis, who is trailing behind former President Donald Trump by wide margins in the Republican primary polls, has previously called CBDCs “government-sanctioned surveillance.” In March, he signed a bill that would ban the use of a national CBDC as money within Florida.

“The Biden administration’s efforts to inject a Centralized Bank Digital Currency is about surveillance and control,” he said in a statement. “Today’s announcement will protect Florida consumers and businesses from the reckless adoption of a ‘centralized digital dollar’ which will stifle innovation and promote government-sanctioned surveillance. Florida will not side with economic central planners; we will not adopt policies that threaten personal economic freedom and security.”

In a June interview with the New York Post, Democratic presidential candidate Robert F. Kennedy Jr. argued that CBDCs are “instruments of control and oppression, and are certain to be abused.”

Speaking at a fintech conference hosted by the Philadelphia Fed Bank on Sept. 8, Fed Vice Chair for Supervision Michael Barr noted that the central bank “has made no decision on issuing a CBDC.”

“Investigation and research are very different from decision-making about next steps in terms of payments system development, and we are a long way from that,” Mr. Barr said in a speech. “The Federal Reserve has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress.”

Digital Dollar Dilemma

Five witnesses appeared before the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion on Sept. 14. The hearing consisted of a chorus of anti-CBDC voices, with Chairman French Hill (R-Ark.) asserting that CBDCs do not have much support “except from those on the fringes who think somehow a CBDC might be an amazing solution to many unstated global problems.”

A CBDC could extend the government with more tools to infringe on individual liberty, said Christina Parajon Skinner, an assistant professor at the Wharton School of the University of Pennsylvania.

“Introducing CBDC is likely to have certain costs to individual economic liberty by providing the state with more tools—and hence greater temptation—to establish command-and-control style public policy,” Ms. Skinner told lawmakers, adding that it could diminish private innovation, impact financial market structures, and fail to advance specific goals, like preserving the global dollar hegemony.

“Technology and economic geopolitics can change rapidly, to be sure, but at least right now, the costs of introducing CBDC appear to outweigh the benefits,” she said.

Norbert Michel, the vice president and director at the Cato Institute’s Center for Monetary and Financial Alternatives, cited a litany of risks, including threats to core freedoms.

If a CBDC were installed during the coronavirus pandemic, the government could have programmed a CBDC only to allow transactions with businesses deemed essential or alert authorities if citizens violated COVID lockdowns, Mr. Michel noted.

“The possibilities for the programmability of a CBDC are nearly endless,” he stated. “And in all of them, even the best of intentions are just a few steps away from leading to serious abuses of power.”

This concern might emanate from a recent discussion at the World Economic Forum during a so-called Summer Davos event in China. Cornell University professor Eswar Prasad discussed the possibility of using CBDCs to socially engineer society.

“You could have … a potentially better—or some people might say a darker world—where the government decides that units of central bank money can be used to purchase some things, but not other things that it deems less desirable like, say, ammunition, or drugs, or pornography, or something of the sort,” Mr. Prasad told the audience in June. “And that is very powerful in terms of the use of a CBDC, and I think also extremely dangerous to central banks.”

According to the Atlantic Council, 11 countries have launched a digital currency, including the Bahamas, Jamaica, Nigeria, and Anguilla. Twenty-one nations have launched pilot projects, and 33 are still in the development phase. Dozens of others are researching the subject.

Results from the Cato Institute 2023 CBDC National Survey found that only 16 percent of Americans support the federal government issuing a central bank digital currency, as many are skeptical. Despite the lack of support, even inside countries that have adopted and employed some incarnation of a digital currency, a 2022 Bank of International Settlements (BIS) study found that 60 percent of central banks have bolstered their CBDC work.

What do you think? Sound off on our Economic Collapse Substack.

(Article cross-posted from our premium news partners at The Epoch Times)

Although the economy has been expanding at a “moderate pace,” the latest credit developments in the “sound and resilient” banking system were “likely to weigh on economic activity” for businesses and households.

Staff economists no longer see a “mild recession” later this year amid better-than-expected spending and real activity.

“However, the staff continued to expect that real GDP growth in 2024 and 2025 would run below their estimate of potential output growth, leading to a small increase in the unemployment rate relative to its current level,” the minutes stated.

Most rate-setting committee members agreed that more interest-rate hikes could be needed if additional inflation risks materialize. Participants noted that inflation remained unacceptably high, and that more evidence was needed to determine if price pressures are diminishing on a sustainable basis.

“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.

At the same time, Federal Reserve officials fear that the central bank could tighten too much, producing a series of risks for the broader economy.

“A number of participants judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee’s goals had become more two sided, and it was important that the Committee’s decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening,” the FOMC minutes stated.

A couple of participants in the July FOMC meeting supported hitting the pause button. There were indicators that the jobs arena was going through a better balance despite the tight labor market.

“The labor market remained very tight, though the imbalance between demand and supply in the labor market was gradually diminishing,” the minutes said.

The U.S. financial markets maintained their losses following the release of the minutes, as the leading benchmark indexes were in the red.

Treasury yields were mostly up, with the benchmark 10-year yield adding nearly 4 basis points to 4.26 percent. The two-year yield picked up 3 basis points to above 4.98 percent.

The U.S. Dollar Index, a measurement of the greenback against a basket of currencies, strengthened above 103.40 after the minutes.

To Hike or Not to Hike

Over the past week, several Fed officials have offered thoughts about monetary policy, particularly on the interest-rate front.

Minneapolis Federal Reserve President Neel Kashkari told the APi Group’s Global Controllers Conference on Aug. 15 that he isn’t ready to declare mission accomplished in the inflation battle, hinting that there could be more tightening ahead.

“Inflation is coming down. We have made progress and good progress. I feel good about that. It’s still too high,” Mr. Kashkari said. “The question on my mind is, have we done enough to actually get inflation all the way back down to our 2 percent target? Or do we have to do more? Are we done raising rates? I’m not ready to say that we’re done.”

In July, the annual inflation rate ticked up for the first time in a year, rising to 3.2 percent from 3 percent in June. This came in softer than expected, but economists agree that it isn’t a trend that the central bank wants to see.

Concerns were amplified following the higher-than-expected jump in producer prices, climbing to 0.8 percent year over year and 0.3 percent month over month in July. Both were up considerably from June. A higher producer price index is typically considered by economists to be a precursor to rising consumer prices.

According to Philadelphia Fed Bank President Patrick Harker, consumer prices have slowed to the point at which the central bank can think about hitting the brakes and steadily holding the benchmark fed funds rate.

“Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work,” Mr. Harker said in a prepared speech at an event sponsored by the Philadelphia Business Journal on Aug. 8.

While monetary policy isn’t a “preset course” and economic data will drive future moves, Fed Governor Michelle Bowman believes that policymakers will need to raise interest rates to combat inflation.

“I also expect that additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2 percent target,” she said at a Kansas Bankers Association event on Aug. 7. “We should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled.”

The FOMC will hold its next two-day policy meeting on Sept. 19 and 20.

The futures market is mostly pricing in a rate pause, according to the CME FedWatch Tool. Despite the FOMC’s June Summary of Economic Projections, which forecasted one more rate hike this year, investors anticipate that the central bank will keep the policy rate at the current range and then start to pull the trigger on rate cuts in March 2024 or May 2024.

The Fed misjudged the economic effects of pandemic-era fiscal programs, which explains why many failed to accurately forecast the inflation that resulted from the stimulus and relief measures, including the March 2020 $2.2 trillion CARES Act, the December 2020 package that consisted of $900 billion in COVID-related spending, and the March 2021 $1.9 trillion American Rescue Plan.

The CARES Act, signed by former President Donald Trump, was sufficient enough to strengthen businesses’ and households’ balance sheets and support their ability to spend in the future, the paper claims.

“Overall, as a share of GDP, the headline costs of these three COVID-era fiscal packages were about 4-1/2 times the size of the American Recovery and Reinvestment Act (ARRA), enacted in response to the 2008 financial crisis and the ensuing recession,” Bernanke and economist Olivier Blanchard wrote in the academic paper, titled “What Caused the U.S. Pandemic-Era Inflation?”

However, looking back at the coronavirus pandemic, Bernanke and Blanchard asserted that the inflation bursts were driven by several shocks, such as the dramatic rise in commodity prices, demand shifts (from services to goods), and labor tightness.

But while the economists concede that wage growth had little effect on inflation in early 2021, the paper purports that labor costs increased over time and have become more entrenched in current inflationary pressures.

“The effects of tight labor markets have begun to cumulate,” the paper noted, adding that they will likely “grow and will not subside on its own.”

“The portion of inflation which traces its origin to overheating of labor markets can only be reversed by policy actions that bring labor demand and supply into better balance,” they wrote.

As a result, the Fed has more work to do to curb inflation.

“Labor market balance should ultimately be the primary concern for central banks attempting to maintain price stability,” the paper said.

Bernanke now serves as a distinguished senior fellow at the Brookings Institution. Blanchard, who previously worked as the director of the International Monetary Fund’s research department, is a senior fellow at the Peterson Institute for International Economics (PIIE).

In January 2021, the consumer price index (CPI) was 1.4 percent. The annual inflation rate started to climb in March of that year, shooting up to 2.6 percent before peaking in June 2022 at 9.1 percent. Since then, the CPI has slowed to 4.9 percent, and the Cleveland Fed Bank’s Inflation Nowcast expects the May CPI to ease to 4.1 percent.

Annualized average hourly earnings for all U.S. employees have been elevated throughout the pandemic as employers enticed candidates with higher pay, hovering around 5 percent. Wage gains have been gradually coming down since peaking at 5.9 percent in March 2022, coming in at 4.4 percent in April.

But real wage growth (inflation-adjusted) has been negative for the past two years.

Soft Landing and Labor Markets

Since the central bank’s tightening cycle began in March 2022, Fed Chair Jerome Powell argued that a soft landing—a moderate economic slowdown, disinflation, and a labor market intact—is possible.

“I continue to think there’s a path to getting inflation back to 2 percent without a significant economic decline or significant increase in unemployment,” Powell said during a post-Federal Open Market Committee (FOMC) policy meeting press conference in February.

But Bernanke and Blanchard posit that the U.S. economy might need to slow further to clamp down on inflation.

“Looking forward, with labor market slack still below sustainable levels and inflation expectations modestly higher, we conclude that the Fed is unlikely to be able to avoid slowing the economy to return inflation to target,” Bernanke and Blanchard explain in the paper.

The paper states that the Fed’s 2 percent target rate could be achieved if labor market slack falls below 1 over the next two years. This metric monitors the number of job openings for each unemployed jobseeker, so if it dips under 1, it signals that more out-of-work individuals are competing for jobs than there are open positions. It presently sits at 1.6.

“Allowing (the ratio) to remain near current levels does not bring inflation down in our projections. Indeed, because an extended period of inflation raises long-term inflation expectations, it leads to slowly increasing inflation,” Bernanke and Blanchard said.

Bernanke appeared alongside Powell at the Perspectives on Monetary Policy panel discussion at the Thomas Laubach Research Conference on May 19. During the event, Powell suggested that labor market slack didn’t play much of a factor when inflation first spiked in early 2021. However, moving forward, he does believe that “labor market slack is likely to be an increasingly important factor in inflation.”

Meanwhile, despite many expectations suggesting that the unemployment rate needs to climb a few percent higher from its current level of 3.4 percent, Powell conceded during his semi-annual “Monetary Policy Report” to Congress that the labor market doesn’t need to be decimated to restore price stability.

Does this mean interest rates need to be higher? That’s the discussion many Fed officials are having.

St. Louis Fed Bank President James Bullard expects two more rate increases this year. He told an American Gas Association financial forum in Florida that “we’re going to have grind higher with the policy rate in order to put enough downward pressure on inflation and to return inflation to target in a timely manner.”

Bullard isn’t a voting member of the FOMC.

In a May 22 interview with CNBC, Minneapolis Fed Bank President Neel Kashkari, a voting member, said it was “a close call” whether to raise rates or hit the pause button at the June FOMC meeting.

According to the CME FedWatch Tool, investors mostly expect the Fed to slam the brakes on rate hikes.

But if the central bank does opt for a rate pause, it might not mean the tightening cycle is over, Kashkari says.

“Some of my colleagues have talked about skipping. Important to me is not signaling that we’re done,” he told the business news network. “If we did, if we were to skip in June, that does not mean we’re done with our tightening cycle. It means to me we’re getting more information.”

The Fed must be “extremely mindful” of when higher interest rates begin to affect the broader economy significantly, warns San Francisco Fed Bank President Mary Daly. The time “is getting nearer,” she said at an economic symposium at the National Association for Business Economics and Banque de France on May 22.

“And when you add the credit tightening that we’ve been seeing to that, it means that there’s a lot of factors pulling back the reins on the economy, and that’s why we have to be so critically data-dependent because if we think it’s not here yet and then we tighten too much, we can easily create an unforced error where we’ve over tightened.”

Article cross-posted from our premium news partners at The Epoch Times.

For the week ending May 10, total U.S. commercial bank deposits declined by $26.4 billion, or 0.15 percent, to roughly $17.123 trillion, the lowest level since July 2021. That represented the third consecutive week of rising deposit outflows as the fallout from the banking turmoil in early March persists.

Large commercial banks (negative $21 billion) and small institutions (negative $2.6 billion) both saw declining deposit volumes on a seasonally adjusted basis. In addition, foreign-related banks reported a $2.1 billion drop in deposits.

Since the collapse of Silicon Valley Bank and Signature Bank, the Fed’s H.8 data show that total deposits have plunged about $476 billion.

The same report found that loans and leases decreased by $3.3 billion.

Despite the downward trajectory in deposits, CIBC Capital Markets Inc. economists don’t believe this is a worrying trend, writing that the latest figures paint a portrait of a banking system normalizing following sizable pandemic-era liquidity injections.

“Some of what we’re seeing is more a reversion to more normal conditions after ballooning liquidity during the pandemic,” bank economist Avery Shenfeld wrote in a recent research note. “The common perception is that a draining of deposits causes a drop in loans.

“While that’s a plausible story for any one institution, in the aggregate, there’s also a cause and effect in the other direction, in which a decline in loans outstanding is what actually causes a drop in aggregate deposits.”

Meanwhile, additional central bank data suggest that banks are still tapping into the Fed’s emergency lending facilities.

The institution’s H.4.1 figures—the Fed’s balance sheet—confirm that loans from the Bank Term Funding Program (BTFP) climbed to a fresh high of $87 billion for the week ending May 17.

Soon after the SVB and Signature failures, the Fed launched the BTFP, which allows borrowers to use Treasury and agency mortgage-backed securities as collateral for loans up to one year.

But while the raw data suggest that the banking system is still facing considerable stress, some public policymakers and market analysts assert that the worst is over.

Atlanta Fed Bank President Raphael Bostic believes the market stresses are subsiding, telling the regional central bank’s Financial Markets Conference on May 16 that “we’ve not seen this contagion take place.”

Fed Chair Jerome Powell reiterated at the Perspectives on Monetary Policy panel at the Thomas Laubach Research Conference on May 19 that the financial stability tools the central bank employed at the onset of the banking turmoil helped “calm conditions.”

Western Alliance Bancorporation recently supported these arguments after a May 15 Securities and Exchange Commission (SEC) filing confirmed that deposits rose by more than $2 billion in the three months to May 12.

Shares of the regional bank tumbled 2.44 percent during the May 19 regular trading session, but the stock recorded a weekly gain of about 25 percent.

U.S. regional bank stocks slumped to finish the trading week after two sources close to the situation told CNN that Treasury Secretary Janet Yellen warned bank CEOs at a recent meeting that more mergers might be necessary.

Yellen met with more than two dozen bank CEOs and executives at a meeting convened by the Bank Policy Institute (BPI) on May 18. Despite a statement reaffirming the strength of the banking system, the Treasury Department didn’t mention these remarks.

The KBW Nasdaq Regional Banking Index fell a little more than 2 percent, while PacWest Bancorp declined almost 2 percent.

If Yellen’s remarks are accurate, new mergers will continue the trend of declining competition in the U.S. banking system. At the end of 2022, there were 4,135 commercial banks, down from the peak of 14,469 in 1983, representing a 71 percent decline over four decades, according to the Federal Deposit Insurance Corp. (FDIC).

The Treasury’s cash balance in its bank account at the Federal Reserve is also heading lower as the department tries to prevent a default on the federal government’s debt. The latest update to the Treasury General Account (TGA) Opening Balance for May 18 stood at $68.332 billion, down from $94.629 billion and $316.381 billion at the start of the month.

Article from our premium news partners at The Epoch Times.

In March, The Conference Board’s Leading Economic Index slumped to its lowest level since November 2020, declining by 1.2 percent and deepening into contraction territory.

The spread between the two- and 10-year Treasury yields, which has forecast nearly every recession since the Second World War, settled the April 20 trading session at negative 60 basis points. The gap has widened since July 2022. The Federal Reserve’s preferred recession measurement—the three-month and 10-year yields—finished the session at negative 158 basis points.

Minutes from the Federal Reserve’s Federal Open Market Committee (FOMC) policy meeting in March revealed that central bank economists expect a recession later this year as the fallout from the banking turmoil spreads throughout the national economy.

Other economists and market experts agree. A recent Marquee QuickPoll for Goldman Sachs, for example, revealed that 53 percent of investors expect a recession this year.

“I believe that a near-term recession is more likely than unlikely. It will be very difficult for the Fed to engineer a soft landing for the economy and still win the battle to stem inflation,” Robert R. Johnson, a professor of finance at Creighton University’s Heider College of Business, told The Epoch Times. “The problem with recessions is that we don’t know we have entered one until after the fact, and we also don’t know we have exited one until after the fact.”

But for many Americans, the recession might already be here.

According to the CNBC All-America Economic Survey, 66 percent of Americans think the United States is headed for a recession or is already in one. Moreover, a January Morning Consult study found that 46 percent of U.S. adults believe the nation is entrenched in a recession.

How should investors prepare for this environment if a recession is on the horizon or has arrived?

Navigating the Markets

Despite bank failures, credit contraction, and tightening lending standards that might slow the economy, this “does not mean you can’t make money in stocks,” according to Nancy Tengler, the CEO and CIO of Laffer Tengler Investments, in a note.

Johnson thinks recessions could be an opportunity to enter the market or build on existing positions “as stocks are selling at prices below previous highs.”

What exactly should you be looking for in today’s climate? According to Ben Fraser, the CIO of Aspen Funds, it is paramount for investors to possess “diversification” in their portfolios.

“Having diversification across multiple investment asset classes and strategies will soften the impact of a recession,” Fraser explained to The Epoch Times.

Michael Collins, the founder and CEO of WinCap Financial and professor at Endicott College in Massachusetts, shares this recommendation about diversification. He told The Epoch Times that investors need to concentrate on “diversified, long-term investments and seek out deflation-resistant, stable investments.”

“This should include investments in blue-chip stocks, bonds, and low-risk mutual funds,” he said. “Adding gold and other precious metals can also be beneficial as a hedge against inflation and market declines.”

Investment diversity has been the go-to recommendation for many financial experts, but the limited research on this subject suggests that only a third of investors ensure their investments are diversified.

At the same time, not everyone is in lockstep with diversification, including billionaire investor Warren Buffett, who asserted that the strategy “makes very little sense for anyone that knows what they’re doing.”

“It is a protection against ignorance,” Buffett said.

Investors can also shift their investment portfolios to defensive sectors “that are less affected by slowing economies,” says Richard Gardner, the CEO of financial technology firm Modulus. This includes health care, consumer staples, and utilities.

It could also be a perfect time to “investigate the financials of your investments,” Gardner told The Epoch Times.

“Stick with companies that have the balance sheet and cash reserves to make it through the storm and come out the other side,” he noted. “This is particularly valuable when taking a long-term approach to investing.”

With governments worldwide investing significant taxpayer dollars in the green energy industry, even as economies might be heading into a recession, Tengler thinks this could be an exceptional trading opportunity.

Tengler has picked potential investment options for green tech, metal, miners, and hydrogen.

“We also like the clean-energy commodities and have recently added to some of those names as well as energy yesterday and continue to add to consumer discretionary,” she stated. “Focus on reliable earners with great, seasoned management teams.”

Bonds and Gold

The global bond market has been volatile over the last 18 months, whether in the U.S. Treasury arena or the U.K. gilts. Heading into 2023, the Barclays Global Aggregate Bond Index—a benchmark of about $70 trillion of sovereign and corporate debt—had tumbled nearly 5 percent since 2021. But many of these indexes have rebounded so far this year, such as the Vanguard Total Bond Market ETF (3.2 percent), iShares Core U.S. Aggregate Bond ETF (3.2 percent), and SPDR Portfolio Aggregate Bond ETF (3 percent).

For years, standard investment advice has been to invest in bonds during a recession since these instruments offer regular cash flow, a predictable fixed income, and a reduced chance of losing your principal. Long-term bonds have been a reliable pick during five of the deepest recessions in the last century, says John Rekenthaler, a member of Morningstar’s investment research department.

“Through each of the five deepest recessions during the past 100 years—two of these have occurred within the past 20 years, so this is not just ancient history—long government bonds not only turned a profit but also outdid Treasury bills,” he wrote in a report. “On four out of those five occasions, equities crashed. Long Treasurys have therefore offered strong protection against stock market declines caused by economic weakness.”

In addition, it is worth noting that interest earned from Treasurys and money markets are not subjected to state and local taxes, although they face federal levies. By comparison, a certificate of deposit (CD) offers higher rates but will be slapped with federal and state income taxes.

For the broader economy, Morningstar analyst Sandy Ward recently stated that the bond market is flashing red, signaling recession, rising credit stress, and weakening economic conditions.

Gold is another safe-haven asset put forward by financial experts.

The yellow metal has trended higher since November on a weaker greenback and the Federal Reserve’s easing monetary policy prospects. Year to date, gold prices are up nearly 10 percent and recently flirted with the August 2020 record high of $2,069.40.

Gold is typically sensitive to interest-rate movements because they can affect the opportunity cost of holding non-yielding bullion. The buck’s performance can make dollar-denominated commodities more expensive or cheaper for foreign investors.

The other factor has been weakening economic data, says Stephen Akin, a registered investment advisor at Akin Investments.

“The primary fundamental event that propelled gold well above $2,000 was weaker U.S. economic data,” he told The Epoch Times. “This data suggest that the Federal Reserve could certainly consider slower rate hikes and a pause of rate hikes sooner.”

Collin Plume, the CEO of Noble Gold Investments, would not be “surprised if 2023 saw a new record high for gold prices” as the global economy “teeters on the edge of recession.”

Emerging Markets

Some experts believe it would be advantageous to consider emerging markets, such as Brazil, China, and India—with or without a recession.

This could be a prudent step, considering that the International Monetary Fund (IMF) forecasts that emerging markets and developing economies will expand by 3.9 in 2023 and 4.2 percent in 2024.

“If we avoid a recession, it may be worthwhile for investors to look more closely at emerging markets which often can provide higher returns but assume a greater risk,” Gardner stated.

Stocks with “upside potential” should be assessed as options for a recession-era investment strategies, including riskier assets.

“This could include investing in riskier assets such as small-cap stocks, venture capital, and commodities,” Collins said. “Investors should also consider adding international investments to their portfolios and investing in sectors that are expected to grow in the long-term, such as technology and healthcare.”

According to Emily Leveille, the portfolio manager and managing director at Thornburg, traders should reconsider international equities, purporting in a note that valuations are generally lower than in the United States.

“Over the past 10 years, foreign markets have traded at a discount to the U.S. that has widened since COVID,” Leveille wrote in a research note last month. “If the U.S. market indeed falls into recession this year, and equity prices contract further, the ex-post valuation disparity will have shown itself to be even wider.”

A peaking U.S. dollar, lower energy prices, and China’s economic reopening would be other reasons to incorporate emerging markets into portfolios.

Where Is the Market Headed?

Despite everything that has transpired in the first few months of the year—from higher interest rates to banking turmoi—the leading benchmark indexes have held steady.

Year to date, the Dow Jones Industrial Average is up 2 percent, the Nasdaq Composite Index has rallied more than 15 percent, and the S&P 500 Index has surged nearly 8 percent. So, where does Wall Street think the market is headed for the rest of the year?

The present risks to the equities arena are earnings cuts and valuation adjustments. Monetary policy could also affect the direction of stocks. Investors are penciling in one more rate hike at the May FOMC policy meeting and planning for rate cuts later this year and heading into 2024 in response to slowing economic conditions, according to the CME FedWatch Tool.

A February 2023 Reuters poll found that strategists expect the S&P 500 will finish the year at 4,200. The index has been trading at around 4,100.

But while industry observers are always on the hunt for trends, the rest of the year may be a time for the stock market to be stuck in “limbo,” says Jurrien Timmer, the director of the global macro in Fidelity’s Global Asset Allocation Division.

“Indeed, the cycle seems to be meandering without a clear inflection,” he wrote, adding that fund flows are displaying “neither hope nor despair.”

“A period of ongoing base-building may lie ahead for the market,” he said. “For investors, the key for now is patience.”

Article cross-posted from our premium news partners at The Epoch Times.