JPM Likes Gold, as Fed Might Let Inflation Overshoot Target

Fed to let inflation overshoot target?

The Federal Reserve has two main objectives: price stability and maximizing employment. Its inflation objective has been 2% for a long time, and inflation has been undershooting this target for a while. As reported by Bloomberg, the Fed’s vice chair, Richard Clarida, said that now is the time for the US central bank to review its twin goals. While the Fed will not change its inflation target, Clarida mentioned that the Fed might consider introducing a strategy that could make up for periods of below-target inflation with periods of above-target price rises.

JPM Likes Gold, as Fed Might Let Inflation Overshoot Target

Fed’s dovish tilt

In addition to this policy, there has been a marked shift in the Fed’s stance on policy tightening. Fed Chair Jerome Powell, as well as other Fed members, have reiterated several times since the start of January that they can be more patient regarding rate hikes.

J.P. Morgan: Gold and TIPS

The prospects of the Fed letting inflation run above its 2% target and its dovish stance on rate hikes is a uniquely positive set up for precious metals, especially gold (GLD). As reported by Bloomberg, J.P. Morgan (JPM) considers TIPS (Treasury inflation-protected securities) (TIP) and gold as the best choices as a refuge from rising prices. JPM strategist John Norman said, “TIPS and gold seem like the most durable inflation hedges for a unique macro environment when the Fed’s reaction function isn’t the only regime change impacting real assets.”

JPM also likes gold (NUGT) (IAU), as the Fed could depress real yields to spur the economy (SPY) (VTI), undermining the dollar (UUP) (USDU).