High-profile Federal Reserve governor Lael Brainard spoke publicly last week about the central bank’s outlook for the pandemic-riddled economy and related monetary policy. And as she did, one thing became abundantly clear to me: The Fed does not share the optimism expressed by others that COVID-19 vaccines mean America’s economic troubles soon will be behind us.
Brainard addressed the Fed’s view of the economy and monetary policy many times throughout last year. Each time she spoke, her message essentially was unchanged: The economy is in bad shape, it’s expected to be in bad shape for years to come, and the Fed will do whatever’s necessary to fix it.
But as 2020 turns to 2021 and vaccination programs are being rolled out across the country, are things still really that bad? Surely the Fed sees a change to its highly accommodative monetary policy posture in the near term – doesn’t it?
Apparently not. In her most recent remarks, Brainard reiterated the Fed’s firm commitment to achieving its longstanding twin goals: maximum employment and a 2% average inflation rate. Brainard also emphasized just how elusive those objectives remain. She cited data about the current condition of the economy to suggest it’s a long way from receiving a clean bill of health.
In my opinion, her words serve as a reality check to those who’ve been cheering the idea that vaccines mean America’s COVID-related economic troubles will soon be at an end. Bottom line: Brainard says we can expect to see continued large-scale asset purchases by America’s central bank. In light of this forecast, I think retirement savers would do well to consider the potentially positive implications for precious metals of even more quantitative easing (QE).
Here’s more detail about Brainard’s recent remarks:
Her speech last Wednesday was delivered to the Canadian Association for Business Economics (CABE). Brainard emphasized that the broad scope of the Fed’s ongoing asset-purchase regimen will remain unchanged. The basis for the Fed’s outlook, she said, is rooted in the significant challenges to economic recovery the agency says will persist over the coming years.
“Effective vaccines and additional fiscal support are important positive developments, but the near-term outlook is challenging due to the resurgence of the pandemic, and the economy remains far from our goals,” Brainard said. “The most recent spending indicators point to a considerable loss of momentum late in the fourth quarter.”
Saying the Fed “needs to see substantial further progress toward our goals before adjusting purchases,” Brainard expressed the central bank’s view that said progress would be slow in coming. “The economy is far away from our goals in terms of both employment and inflation, and even under an optimistic outlook, it will take time to achieve substantial further progress,” she said.
“Given my baseline outlook, I expect that the current pace of purchases will remain appropriate for quite some time,” Brainard added.
In her comments, the Fed governor emphasized her particular concern about the nation’s employment picture. The strength – or lack thereof – of the country’s workforce typically is a paramount consideration when it comes to the determination of monetary policy.
Last April, the U.S. unemployment rate reached its highest level since the Great Depression – 14.7%. The jobless number has dropped since that time and is now down to 6.7%. However, Brainard said the current figure belies disturbing details the Fed is zeroing in on as a big part of its justification to maintain the monetary policy status quo.
In her speech last week before CABE, Brainard noted that while Fed research has determined the top quartile of earners has seen unemployment fall below 5%, the unemployment rate of the bottom quartile is above 20%. Moreover, said Brainard, the “labor force participation [rate] for prime-age workers has declined,” adding that “the K-shaped recovery remains highly uneven, with certain sectors and groups experiencing substantial hardship.”
In my view, the significance of the Federal Reserve’s economic outlook cannot be overstated. The Fed is not a mere economic think tank. The agency is responsible for engineering and implementing monetary policy in the United States. And the effects of that monetary policy have the potential to exert great influence over all assets, including precious metals. Indeed, some of the most prominent precious metals surges in recent history have coincided with the application of drastic easy-money policy measures.
The years of the 2008 financial crisis are one example. In November 2008, the Federal Reserve announced its first-ever round of quantitative easing (QE) and followed that up with another round – known as “QE2” – two years later, in November 2010. Against the backdrop of these massive asset-purchase initiatives, the price of gold and silver surged 160% and 400%, respectively, from 2008 to 2011.
The onset of the COVID-19 pandemic has provided another example of a time when precious metals have significantly strengthened about the same time that acutely accommodative monetary policy initiatives were undertaken.
Earlier, I noted the U.S. unemployment rate reached its highest levels since the Great Depression as the pandemic exploded. Small businesses – which employ nearly half of all U.S. workers – shuttered at an alarming rate. In early spring, the Fed announced there would be no predetermined limit on the size of asset purchases as its rescue effort began. Not only that, the agency said the list of eligible securities would be expanded to include even junk bonds. And, as the Fed’s latest and perhaps most aggressive application of QE gained steam, gold jumped 40% and silver soared a jaw-dropping 130% from March to August.
 Board of Governors of the Federal Reserve System, federalreserve.org, “Full Employment in the New Monetary Policy Framework” (January 13, 2021, accessed 1/21/21).
 Greg Iacurci, CNBC.com, “Unemployment is nearing Great Depression levels. Here’s how the eras are similar — and different” (May 19, 2020, accessed 1/21/21).
 Madeleine Ngo, The Washington Post, “Small Businesses Are Dying by the Thousands — And No One Is Tracking the Carnage” (August 11, 2020, accessed 1/21/21).
 Patti Domm, CNBC.com, “Fed fires an even bigger bazooka, expands its shopping list to include junk bonds” (April 9, 2020, accessed 1/21/21).
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