Inflation is here to stay no matter what the Fed says or does - Murenbeeld & Co.
(Kitco News) - The Federal Reserve is looking to tighten its monetary policy in 2022 and even speed up the reduction of its monthly bond purchases; however, there is little they will be able to do about the global supply disruption that is driving inflation higher, according to one market analysts.
In a recent telephone interview with Kitco News, Chantelle Schieven, head of research at Murenbeeld & Co., said consumers should brace for higher inflation for the next several years as it will take time to repair the global supply chain.
"It could take four to five years to completely fix the damage the COVID pandemic caused to the global supply chain. Companies are resourceful, and they will find short-term fixes and other methods, but it will push costs up," she said.
Schieven said inflation could remain between 3% 4% for the next couple of years, well above the U.S. central bank's target.
Not only will global supply issues, rising wage inflation and continued government spending continue to push price pressures higher, but Schieven said that even if the Federal Reserve wanted to get in front of the inflation curve, they couldn't.
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Schieven explained that the connection between financial markets and the global economy will force the Federal Reserve to keep interest rates below inflation, keeping real interest rates in negative territory.
"Right now, according to our research, equities are at fair value given where interest rates are. But if you raised the 10-year yield, then almost every single sector, with some exceptions, shoots into overvalued territory," she said. "Now more than ever, the Federal Reserve is sensitive to gyrations in equity markets."
While the global economy is still recovering from the COVID-19 pandemic, Schieven said the Federal Reserve will be cautious about making a policy misstep. She added that the last thing the central bank will want to do is raise interest rates too early and too aggressively, only to have to reverse course months later.
"There is still just so much uncertainty, and I expect that the Federal Reserve will be a lot more cautious as they tighten monetary policy and that is still a good environment for gold," she said.
Looking at gold prices, Schieven said they see gold prices pushing back to $1,900 an ounce in early 2022 as the market creates a new range in the growing inflationary environment.
However, she added that gold's bull market is far from over.
"We believe that before this gold bull market is over, it is going to take out its inflation adjusted highs, which is about $3,000 an ounce," she said.