Markets turned around after US Treasury Secretary Janet Yellen said interest rates may hike much earlier than scheduled. She said it needs to be done in order to prevent the overheating of the economy.
But such news is very detrimental for gold, so it lost a huge 3,000 pips yesterday. It even failed to break through $ 1,800.
Since the US went into a lockdown because of Covid, the Congress has pledged about $ 5.3 trillion in spending and stimulus, which resulted in a budget deficit of more than $ 3 trillion in 2020 and $ 1.7 trillion in the first half of 2021.
Now, the Biden administration is pushing for $ 4 trillion more, to fund various long-term projects.
Obviously, the new US president is very ambitious about the economy, trying to raise investments in infrastructure, research and development. He also wants to add aid to households and small businesses.
But the Federal Reserve, from then until now, has kept interest rates near zero. Officials believe that this is the best for the economy, at least until target levels in employment and inflation are achieved.
However, the ongoing rapid recovery has increased the fear that inflation will surge to a very high level. Even so, Fed members reassured that after a short rise this year, price pressures will ease.
Yellen also said she is not worried about inflation because the government has all the tools needed to combat it. Additionally, Fed Chairman Jerome Powell said that higher interest rates are the main tool for controlling it.