The Forecast for Interest Rates
According to Tom Luongo, Publisher of Gold, Goats ‘n Guns, the Federal Reserve will hike interest rates to 6 percent in 2023. Luongo correctly forecasted in 2022 that Fed Chair Jerome Powell would continue to raise rates into the 4.5 to 6 percent range in 2023, when many analysts were expecting a pivot or pause.
Luongo believes that Powell will raise rates multiple times before the end of the year, resulting in an interest rate of around 6 percent by the end of the year. Since March 2022, the Federal Reserve has raised rates by 500 basis points in an effort to reduce inflation, which peaked at 9.1 percent in June 2022. The current Federal Funds Rate is between 5 and 5.25 percent, after the Fed slashed rates to zero in 2020 to combat the effects of COVID-19.
The Impact on the Banking System
As the Fed tightens monetary policy, Luongo predicts that more bank failures will occur across the United States. The failures of four major banks earlier this year have raised concerns about the stability of the banking system. Luongo points to commercial real estate loans as a catalyst for the next wave of bank failures, as many regional banks are exposed to the risks associated with the high vacancy rates in hot markets like Dallas and Miami.
The Outlook for Gold
Luongo expects hard assets like gold to benefit as the banking system collapses and the economy enters a recession. He sees gold reaching minimum prices of $8,000 to $10,000 in the next couple of years, taking inspiration from the gold rally of the 1970s. If the dollar collapses following Powell’s actions, Luongo believes that things could become very interesting for gold and gold investors.
Tom Luongo’s forecast suggests that the Federal Reserve will raise interest rates to 6 percent in 2023, with multiple rate hikes expected throughout the year. This move is intended to combat inflation, which reached a peak of 9.1 percent in 2022. As the Fed tightens monetary policy, the banking system may face further failures, with commercial real estate loans playing a significant role. However, Luongo believes that this economic turmoil will create opportunities for hard assets like gold, with prices potentially reaching historic highs in the coming years.