Tough Times Ahead: Bad News For Fed, Good News For Gold - Jim Grant

All eyes were on Fed chair Janet Yellen’s testimony before Congress Wednesday to see if current financial conditions will delay the central bank’s tightening cycle. Investment guru and publisher of popular newsletter Grant’s Interest Rate Observer Jim Grant, says this may be the case as tough times lie ahead for the Federal Reserve. During her testimony, Yellen told the House of Representatives' Financial Services Committee that current global economic troubles and the recent selloff in equities could affect the U.S. economy, raising the prospects of a delay in rate hikes this year. The first rate hike in December, Grant continues, was done merely out of obligation so markets wouldn’t lose credibility in the Fed. 'It turns out that it was perhaps the right idea at exactly the wrong time because what followed was kind of a deflationary vortex in the world’s financial and debt markets, and perhaps in the world’s economy,’ he tells Kitco News. At its December meeting, the Fed raised rates by 25 basis points, its first hike in almost nine years. Grant, also author of The Forgotten Depression, notes that the problem with the policies is that central banks are being run by academics, and the management isn’t effective. ‘They pull forward the fun things like consumption, and push out in time the bad, necessary things like corporate failure,’ he says. ‘So, perhaps now, the good stuff pulled forward is ending and the bad stuff pushed out is upon us,’ he suggests. In this type of environment, gold prices should move higher, he says. 'I think gold is going to be coming into its own in reaction to the wrong-headed notions and policies of our central bankers.’ After hitting an eight-month high earlier in the week, gold prices have slightly pulled back, with April Comex gold futures settling down $2 at $1194.60 an ounce. Kitco News, February 10, 2016.