Bank of America and Goldman Sachs now expect the Federal Reserve to raise interest rates three more times in 2023 after the highest PPI growth in seven months. Both banks predict three consecutive 25 basis point raises at the next three FOMC meetings, followed by a pivot. Federal Reserve Chairman Jerome Powell has repeatedly said there would be no pivot in 2023.

The new expectation is the second change both banks made in February. After the 25-basis point hike on February 1, both banks predicted one more 25-basis point hike and a pivot. A week later, the jobs report showed 517,000 new jobs added in January. Both banks added a 25-basis point prediction and then a pivot. A week and a half later, the PPI came in at a seven-month high, and they changed their expectations again to three raises and then a pivot. 

Banks predicted pivots all last year and were wrong. Banks admitted they have been wrong twice in 2023, sticking to their belief that a pivot is around the corner. It is hard to take the bank predictions seriously when one monthly number outside the expectation changes its entire forecast twice within two weeks. The labor market numbers are why the banks keep changing their predictions. How can banks claim to know the direction of the interest rates six months from now if they can't predict what the labor market will do in the next thirty days? It is absurd.

The banks are fundamentally missing something, doing lousy math, or have an agenda of selling the pivot to their customers. Overwhelmingly, banks are coming to the same numbers and conclusions, so bad math is unlikely. The banks may be gaslighting and hoping people will think a pivot is coming so they will buy bonds. It is an excellent time to buy bonds whenever it looks like interest rates will lower. Buying bonds at the peak rate before the pivot will consistently increase in value over time as the rates decrease. It could be a conspiracy across the entire sector to mislead people, which is possible. While banks predicted rate pivots, they bought record amounts of physical gold at multi-year low prices. Banks want people to buy their paper products. In contrast, the banks purchase gold without competition, planning to reset their balance sheets when the paper market collapses. 

Banks have often lied for profits, but a vast and sweeping conspiracy seems improbable to conclude to explain why they keep getting the interest rate hike prediction wrong. It wouldn't be the first-time banks engaged in questionable and morally bankrupt behavior to profit from the unsuspecting masses. The name Wells Fargo is all that needs to be said to prove that point. Instead, greed is a component, but wishful thinking and confirmation bias blinded the banks from the facts.

Suppose bad math and conspiracy are not the most probable. In that case, the only reasonable explanation is that the bank forecasts come from a wrong model. A faulty model implies there are things that the banks still need to understand. In other words, there are unknowns or ignored facts in the market. The reality is that banks and financial institutions frequently get the call wrong as a rule, not an exception. Suppose banks with armies of analysts, the best market data, artificial intelligence, and influence over policy frequently misread the market. What chance does the average American have that needs more time to scour through the data and learn the complexities of the market? 

The excessive printing and overreaction to the pandemic created a massive problem. The Fed has almost $20 trillion on its balance sheet. It only had around $4 trillion on its balance sheet in March 2020. In the last year of higher interest rates, the Fed has only shed about $1 trillion. It could be years before the Fed will lower interest rates meaningfully.

Most financial advisors recommend that 10-20% of a portfolio be in precious metals. However, the more risks one sees in the market usually translates to higher percentages in safety assets like precious metals.

Hopefully, the market will stop ignoring the Fed's words. Let's agree that positive thinking won't remove the world of consequences. Solving problems requires decisions and actions. Hopefully, readers of this blog will realize that the banks, government, and financial industry constantly lie and get it wrong. Ironically, the Fed is telling the truth this time, and the market doesn't believe it. The reality is that there will be high-interest rates for longer than most people expect. It will probably be a long and painful road to the bottom for stocks, bonds, and real estate. As long as banks keep predicting a pivot, there will remain enough optimism in the market that most people will try to ride the storm out until nothing is left. Don’t follow the market off the cliff. Paper is not a good parachute. Let gold be your financial anchor.

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