'Dragflation' is here, Fed will 'blow everything up' once interest rates hit this level - Gerald Celente
The Federal Reserve is now fighting the strongest inflationary environment since the 1980s, and pressure is mounting for the Federal Open Market Committee (FOMC) to begin not just tapering asset purchases, but hiking interest rates.
Gerald Celente, publisher of The Trends Journal told Michelle Makori, editor-in-chief of Kitco News, that should an “artificially low” interest rate policy end, disaster would hit global financial markets.
“When [the Fed] starts raising interest rates seriously, this thing is going to go down big and it’s going to go down hard,” Celente said. “I believe they’re going to [raise rates] sooner rather than later, near the beginning of the year, in January, February, and they’re going to do it step by step, they’re going to play the markets out. I believe we’re going to get through a lot of 2022 in moderately good shape. My hit point is where the Fed gets interest rates up to 1.5%. That’s going to be the end.”
“The end” refers to a meltdown of risk assets like equities.
Celente’s comments come as inflation data for November was released last week, with headline CPI coming in at 6.8%, the highest since 1982.
The Fed has announced plans to taper Treasuries and mortgage-backed security purchases in November but has not yet declared a timeline for hiking the Fed Funds rate, with Fed Chair Jerome Powell indicating that full employment is a prerequisite for lift-off to happen.
Celente noted that the economic growth is also likely to start slowing down significantly and enter a period of “dragflation”, a term he uses to describe a situation even worse than stagflation.
“All of the countless trillions of dollars that they’ve pumped into the economy to artificially boost it up is what’s pushing up inflation,” he said. “Dragflation is…it’s not going to be a stagnant economy, or stagflation, the economy is going down as inflation continues to go up.”
On precious metals, Celente said that capital flows that should have gone into the metals this year were diverted into cryptocurrencies, but prices for both gold and silver look attractive at current levels.
As of Monday, spot gold traded at $1,786.50 an ounce while silver traded at $22.50 an ounce.
Cryptocurrencies will continue to climb higher in the short-term, Celente added, although downside risks remain, especially if Bitcoin tests the lower bound of $25,000.
“I could see it going back down to $8,000,” he said. “But I don’t see it going away. The only way I see cryptocurrencies going out is if governments ban them.”
On top trends to follow for 2022, Celente said that one of the most important technological innovations to watch for is the metaverse.
Some of the industries that will benefit from the growing metaverse trend are healthcare, education, and communications, he said.
For more information on the geopolitics and how China-U.S. tensions could impact financial markets, watch the video above.
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