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(Kitco News) The Federal Reserve is at the end of its rope, but it is not letting on how damaged the economy is, said Rich Checkan, President and Co-Founder of Assets Strategies International.
After hiking by 500 basis points in just over a year, the U.S. economy is showing signs of cracking, Checkan told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. But with inflation still problematic, the Fed is not ready to admit it.
"The Fed is coming to the end of its rope," Checkan said. "There's only so much they can do. I'm seeing signs of a breaking economy."
The first warning sign is more people putting utility and grocery bills on credit cards due to high mortgage rates.
"There's a reason for that. They can't refinance their house and tap into that piggy bank because every time they do, the interest rates go up," Checkan explained. "It was different when money was free. Now money has a cost to it, so people are putting necessities on their credit cards. We're seeing an increase in consumer credit."
Another looming problem is the regional banking sector and its exposure to the commercial real estate market.
"I don't even want to begin to think of what the commercial real estate market is going to look like and the impact that is going to have on the banking and financial sectors when major players walk away from trillion-dollar mortgages in big cities," Checkan said.
More bank failures are brewing, and it is unclear how the U.S. economy can absorb that without pain. “The regional banking sector will have to absorb massive losses, and the only way they are able to do that is by getting bailed out by the Fed,” he added.
Watch the video above to learn more about Checkan's outlook on the financial sector.
Fed's credibility
The Fed still has the majority of people convinced that it knows what it is doing despite initially getting the inflation narrative wrong.
"A lot of people give the Fed credit right now, and they believe that they have matters under control," Checkan pointed out. "But the Fed has been so wrong for so long to have credibility in anybody's eyes is beyond my comprehension."
There are cracks in the foundation of the U.S. economy that the Fed is not admitting to yet.
"There's more damage to the economy than [the Fed is] letting on," Checkan said. "The masses aren't seeing it. The confidence level is up, and they believe what the Fed tells us."
But a recession is on its way, and it will likely be a hard landing.
For Checkan's view on the coming recession and why the Fed's options are extremely limited, watch the video above.
Why this is good for gold price
The end of the road is near for the Fed, which will be a good time for those who have already purchased gold, Checkan described.
In his outlook, gold rises and stocks pull back as the Fed eventually pivots.
"The next bull market tends to be two to three times the high of the previous bull market. And we went from $852 to $1,900 an ounce in the last bull market," he said. "I fully expect to see it somewhere around $3,000, $3,500 before this bull market is done."
To get the timeline on when the $3,500 target will be achieved, watch the video above.
Checkan also discusses gold coins and premiums. Watch the video above to gain insight into which gold coins Checkan recommends and how the premiums have varied.
