Fed Governor Cook says she's 'prepared to act' on rate hike to address inflation - CNBC

Fed Governor Cook's rhetoric about being "prepared to act" on rate hikes to address inflation is exactly what we expected. It's the sound of the Fed finally admitting the obvious: inflation isn't transitory, it's entrenched, and they're woefully behind the curve. For physical metal holders, this isn't a threat to your stack; it's confirmation that the central bank is being forced to acknowledge reality, which only underscores the necessity of holding real assets as purchasing power erodes. The market's initial reaction, with spot gold holding strong around $4334.1 and silver at $62.4, shows that sophisticated money already understands the game.

Let's be clear: a 25 basis point or even 50 basis point hike when official inflation is running north of 8% is a token gesture. It does little to change the fact that real interest rates remain deeply negative. If you're earning close to zero on your cash while prices are soaring, you are losing significant purchasing power every single day. The Fed's job here is to try and restore confidence, not to genuinely tackle the root causes of inflation, which are largely supply-side issues exacerbated by years of easy money and fiscal profligacy. This isn't a tightening cycle in any meaningful historical sense; it's a slow-walk acknowledgment that their prior policies have failed.

Historically, the Fed has a poor track record of engineering "soft landings" when inflation is running hot. Look back to the late 1970s. Paul Volcker had to push the Fed Funds rate to nearly 20% to break the back of inflation. Today's Fed is talking about moving off a zero bound in an economy far more indebted. Any significant rate hikes would shatter equity and bond markets, something they are desperate to avoid. This means their "actions" will likely be insufficient to bring inflation back down to their arbitrary target of 2%, maintaining a deeply inflationary environment beneficial for hard assets.

The gold to silver ratio currently sits around 69.5:1, signaling that silver remains undervalued relative to its historical averages and its industrial demand profile. While the headlines focus on the Fed's hawkish talk, the smart money is looking past the rhetoric to the underlying economic fundamentals: persistent inflation, increasing geopolitical uncertainty, and a lack of sound fiscal policy. These are all drivers for the physical metal market. Any short-term dips in spot based on this kind of talk are simply buying opportunities for those looking to add to their stack before the true inflationary implications manifest more broadly.

What to watch next is not the talk, but the actual rate of inflation prints against any announced hikes.