Fed will raise rates to 6% in 2023, gold could hit $10k by 2025 - Tom Luongo
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(Kitco News) - The Federal Reserve will hike interest rates to 6 percent in 2023, according to Tom Luongo, Publisher of Gold, Goats 'n Guns.
Luongo had correctly forecast in 2022 that Fed Chair Jerome Powell would continue to hike into the 4.5 to 6 percent territory in 2023, when many analysts were forecasting a pivot or pause.
"I think he [Powell] will raise again, and possibly even raise multiple times before the end of the year," Luongo told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. "We'll wind up somewhere around 6 percent by the end of the year."
Since March of 2022, the Federal Reserve has raised interest rates by 500 basis points in an effort to reduce inflation, which reached a peak of 9.1 percent in June of 2022.
The Federal Funds Rate is currently in a range of between 5 and 5.25 percent.
The Fed had previously slashed rates to zero in 2020 to help the U.S. government facilitate COVID-related relief. This, analysts claim, led to high inflation in 2022.
Luongo said that Powell was "forced" into a loose monetary policy, even though he personally was against it.
"Powell has always been a hard money guy," Luongo explained. "I think that COVID forced him into policy he didn't want."
To find out why Luongo thinks that high inflation will return, and what the Fed will do about it, watch the video above
As the Fed tightens monetary policy, Luongo expects more bank failures across the United States.
"I just see the entire banking system imploding, detonating like a nuclear bomb," he said.
The U.S. banking system faced uncertainty following the failures of four major banks early this year. The latest bank to fail, First Republic, had over $200 billion in assets under management, making its collapse the second-largest in American history.
Luongo sees commercial real estate loans, which many regional banks are exposed to, as a catalyst for the next series of bank failures.
"You've got 20 percent vacancy rates in hot markets like Dallas and Miami," he observed. "[Regional banks] are exposed to a lot of commercial real estate… all credit-based assets are going to deflate."
To find out whether Luongo believes that another bank collapse would cause Powell to pivot, watch the video above
As the banking system collapses and the economy enters a recession, Luongo is forecasting that hard assets like gold will benefit.
"If we look at the 1970s as a model, we are looking at $8,000 to $10,000 in gold minimum, over the next couple of years," he forecast. "If the dollar collapses on the other side of Jerome Powell, then things could get very interesting for gold and gold investors."
To find out Luongo's outlook for gold miners, watch the video above