Welcome to Kitco News’ 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.
(Kitco News) - 2022 is just around the corner, and if the new year is anything like the past week, we hope that you have a seat belt because it looks like it is going to be a wild ride.
This past week Kitco News launched its 2022 outlook series, and not surprisingly, the most significant topics everyone is talking about are inflation and global monetary policies. Notably, a lot of eyes are on the Federal Reserve as it tries to talk down the growing inflation threat as consumers prices saw an annual rise of 6.8% last month.
At first glance, the Federal Reserve appears to be taking the growing risk of rising consumer prices seriously. Still, some analysts are saying that it is too little too late. This past week the Federal Reserve gave markets a little bit of a surprise after releasing its updated economic projections. The central bank now sees the potential for three interest rate hikes next year. However, they continue to downplay the inflation threat as they see it rising 2.6% next year.
By comparison, most economists Kitco News has talked to expect inflation to range between 3% and 6% through the first half of the year and then slowly start to drop in the second half. Danish Bank Saxo Bank made recent headlines with their Outrageous 2022 forecast, saying that if wage inflation spirals out of control, prices pressure could rise 15%.
Along with the Federal Reserve, the European Central Bank also struck a slightly more hawkish tone as it announced a shift in its quantitative easing, saying that it will end pandemic-related purchases in March. Still, they will increase asset purchases in their regular asset-purchase programme.
Despite these hawkish tones, gold prices are seeing some resilient strength. This week the precious metal managed to bounce off support just above $1,750 an ounce and push back above $1,800 an ounce. Our hope is that investors are starting to wake up to the reality that no matter how hawkish central banks may sound, they will not be in any hurry to jump in front of inflation.
One interesting aspect that has come out of Kitco News 2022 research is that no economist we have talked to expects the U.S. central bank to become proactive on inflation. Central banks are going to remain well behind the inflation curve, no matter how many rate hikes they forecast.
This will be our last newsletter for 2021. To all our readers, the Kitco News team wishes everyone happy holidays and see you in the new year.