Gold pushes lower in run-up to next week’s FOMC meeting
Lundin projects a $1.4 trillion federal government interest expense at 4.5% fed funds rate

(USAGOLD – 10/28/2022) – Gold pushed lower this morning as it often does in the run-up to FOMC meetings. It is down $12 at $1654. Silver is down 24¢ at $19.43. Gold Newsletter‘s Brien Lundin believes that the greatest impediment to future Fed rate hikes is the intolerable interest expense it would impose on the federal government. He says that there is “no doubt that the costs are going to soon soar well past $1 trillion” and put up a roadblock to any further rate hikes. (By way of perspective, total federal tax revenue for 2021 was $2.76 trillion.) The resulting negative real rate environment, he concludes, will be “extremely positive for precious metals and other tangible assets.”

“This is the direct result of a federal debt that has more than tripled since the Great Financial Crisis of 2008,” he contends, “and is 64% higher than the last time the Fed tried to raise interest rates. But today the Fed is raising rates at more than three times the speed it has at any time since the 1980s. .… If the consensus range were to be reached (4.5% on the Fed funds rate), the yearly cost to service the federal debt would reach toward $1.4 trillion, and rising. This is a stark reality that the market will now be forced to face, as we just received the initial third-quarter estimate of annualized federal interest expenses. The number is buried within the Bureau of Economic Analysis’ first estimate of third-quarter GDP, which was released just this morning. According to that report, the cost has soared to $736.579 billion.”

overlay line chart showing rising interest rates and the amount of interest paid on the national debt now at $736.5 billion
Sources: St. Louis Federal Reserve [FRED], US Bureau of Economic Analysis

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