The rocking President and the rolling governor

No one could accuse President Trump of being a shrinking violet. His response to the latest inflation figures of the US was to post on his own social platform "interest rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Let's Rock and Roll, America!!!"

Those words are bound to be ignored by Jerome Powell, chairman of America's central bank, the Federal Reserve, and the man who really controls interest rates, much to Trump's irritation. Powell won't be lowering interest rates in a hurry - the Consumer Price Index (CPI) in January was 3%, the highest since June, and up marginally from December. The Fed aims to get inflation at 2%/year. That 1% difference seems tiny but looked at another way it's 50% higher than the Fed desires. Maybe the Fed's hope of hitting the 2% target is in any case futile; the last time US inflation was close to 2% was in 2019, when it was 2.3%.

The President has limited influence when it comes to setting interest rates. He can only voice his frustrations from the sidelines. The rolling governor of the Bank of England (BoE) on the other hand has the price of British money in his hands. And unlike Powell/Trump the BoE's boss, Andrew Bailey, fears that the UK is facing that most miserable of economic problems, stagflation. Britain's economic growth is stagnant, inflation remains above the BoE's target (2%/year) and the unemployment rate during September to November 2024 was 4.4%, higher year-on-year. For the 16-24 age range it was 14.5%, also higher than the previous year. Recruiters are reporting that the UK jobs market is tougher than at any time since the Covid-19 pandemic. The outlook for the European Union (EU) is little better. The stumbling German economy will be uppermost in the minds of voters in the 23 February national elections.

Central banks lose the plot

What are central banks for? A key responsibility is to ensure economic stability, to supervise the cost of money through interest rate checks and balances, and to manage the money supply of a country. Central bankers should be required to undergo strict personal vetting, to ensure their scrupulous morality.

Sadly that doesn't happen. Central banks lost the plot during the Great Financial Crash of 2007-2008, when they printed trillions of banknotes of their countries currencies, and justified this vast tsunami of cash by saying the alternative was unthinkable - captured in the phrase 'too big to fail'. Rather than let big banks fail governments bailed them out. Once tried, that game became easy to repeat.

Just a few years later came Covid-19, when governments everywhere reacted in the same way - lock down their populations, print even more trillions, and hand this paper money out to their citizens.

It should surprise no-one that all this money printing, done at the behest of panicky governments, inevitably led to a more rapid devaluation of paper currencies, which happens anyway with inflation at 2%/year. It also fed the inflation burst of 2021-2023, from which we are still recovering. The financial crash opened a Pandora's Box: digital 'currencies' and a subtle, long-term erosion of the principle of moral hazard, the guarding against risk. People searched for ways of protecting their assets; some turned to digital 'money', others turned to what has always been regarded as true money, gold. Both have exploded in value.

The future is yours

The BoE now expects UK inflation to rise to 3.7% by mid-2025, almost double its target. In the US the expectation for inflation is that it will be around 2.7% for this year overall, rising to 3% next year. President Trump will continue to pressure Jerome Powell, pressing him to reduce interest rates to give a boost to US equities and make borrowing cheaper. In the UK and the EU interest rates are slowly coming down as governments fear the bogeyman - stagflation. The US and Europe share at least one thing - the cost of borrowing, the servicing of debts, needs lower interest rates. Billions are being paid annually simply to service huge debts.

Economic growth is an elusive elixir in the UK. It may become so in the US too. To fund their vast welfare demands, governments need to increase their tax revenues, or cut spending, or print more paper. Are central banks about to renew their acquaintance with moral hazard? Is that why they have become such relentless buyers of gold? Andrew Bailey may not like the word 'stagflation' - he said "I don't use the word stagflation. It really doesn't have a particularly, frankly, precise meaning" - but wishing it wouldn't rain doesn't make the sun shine. Gold is impervious to inflation, stagflation, any-flation. Pandora's box cracked open in 2008; it isn't going to be shut anytime soon.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.