Sirwin
Sirwin
Another Week... Another Flurry of Rate Hikes

Another Week... Another Flurry of Rate Hikes


Last week, I reported that the Bank of Canada surprised markets by raising interest rates by half a percentage point (50 basis points) instead of the expected 75 basis points. This sparked speculation the Federal Reserve Bank of the U.S.A. would also make a similar move and reduce the rate of increase or that the BoC was diverging away from the FED. Yesterday afternoon, we got our answer.

The FED, at the conclusion of their monthly FOMC meeting announced a 75 basis point rate hike, bringing the federal funds rate to 4%. This marks the fourth rate hike by the FED since Spring and the most aggressive tightening since 1981! The FED hinted as reducing the rate of increases going forward which is being described as a 'soft pivot'. They also noted that there's a lag of 9 to 12 months before a rate hike propagates through the economy and we are now 8 months past the first rate hike. Because of this, the FED is waiting to see how everything unfolds (or unravels as I prefer to say) over the next few months onward if a reduction in rate increases is warranted.

Gold and silver reacted with a sharp jump up just before the news hit, followed by a sharp pull down (Graphs courtesy www.kitco.com). At time of writing, gold sits at $1,619.40 and silver is at $19.05 which once again provides a buying opportunity for silverbugs like me. 

Spot Gold - November 2, 2022 Spot Silver - November 2, 2022

The FED rate hike pushed the USD index back above 112 and presently hovers at around 112.918 and appears set to break the 113 mark again. It was last above 113 on October 14th. WTI (West Texas Intermediate) oil is down 2.3% overnight to $87.88 and Brent Crude is down 1.74% to $94.42 per barrel.

Bitcoin lost some $500 of value but is holding strong at $20,241

As the title of this post suggests, it wasn't just the FED. Norway's Norges Bank raised their rate by 25 basis points to 2.5% while the Bank of England announced a 75 basis point hike this morning, the single biggest rate hike since 1992 and the eighth rate hike in a row.

Last Thursday, the European Central Bank hiked by 75 basis points, the third consecutive rate hike this year. ECB President Christine Lagarde has stated to expect more rate hikes. This marks a complete turnaround since they had held rates at negative or below zero for the better part of a decade, up until this year. The day before, it was the BoC, raising by 75 basis points.

We're likely to see more central banks in coming days and weeks make similar moves to counter the effects of a strong U.S. dollar.  Many are expecting the FED to pivot in December or early in the new year. While they may 'soft pivot' and reduce the rate of increases, interest rates are going higher regardless.

At this point, I can only suggest to those who have loans, to hurry and pay them down as soon as possible and to avoid borrowing money. It appears to me we are being set up for some kind of inevitable crash. Many mortgages are / will be up for renewal in the new year and I've picked up hints here and there that fixed rate mortgages will be abolished by lenders in favor of variable rate mortgages in order to increase profits. I've read somewhere very recently that some 40% of fixed rate mortgages in the U.K. are up for renewal and applicants won't be pleased when they've no choice but to go with a variable rate mortgage.

We'll see how that plays out, huh?

On a related note, oilprice.com reports that central banks are buying gold at the fastest pace in 55 years! I wonder why???

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SweptOverNiagara
SweptOverNiagara

Name's Joe and I live in Ontario, Canada. I like writing on a wide variety of topics. I enjoy keeping track of markets, investing and commodities and the crypto sector. Also do some coding for web browsers.


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