Stock market volatility declines, The Fed needs to set a high % rate rise for credibility. Putin 'put' on oil has beed activitied. New cold war and the threat of weapons of mass destruction. Gold is bid.

 

While the Federal Reserve and most global Central banks attempt to smooth out volatility in equity (stock) markets, of course widespread risk aversion is now being entrenched into a market facing stagflation and a new Cold War with Russia that could go hot, the Fed is stuck, with inflation out of control, supply chains broken and China locking down almost half their populous (Shanghai next?) due to a new Covid strain.   Rates are too low even to contemplate that Central Banks can contain price erosion via the scourge of inflation and this will be on everyday items such as food and energy costs.   But, any interest rate increase that is over 25 basis points will stifle the cheap money train into Wall Street, that, at this point in time is still pricing in speculation.  There has to be at least a 2% rate increase as a shock and awe, otherwise Americans will be mighty annoyed that oil is spiking to $150 a barrel and as noted in this post, Putin will not allow the oil price to settle under $100 a barrel, remember Russian is the number exporter of gas and oil and China a net importer.   Both superpowers are watching each others backs at the moment, heightening the concern that a Eastern bloc is forming both economically and militarily.

Best thing in all this tumultuousness, is to have the U.S. Dollar rally like no tomorrow.

In the meantime, the Chart above explains what is occurring with the Fed sitting on its hands.   The VIX, which is a volatility index, used in the options market to hedge against stock market volatility is declining, while the gold price ('doomsday' hedge) is increasing.  Gold closed at $1947 and the VIX has collapsed from its March 2022 high of 36 down to 23, rather than trailing gold as a hedge, the volatility index is now diverging, indicative of stock markets calming.  But for how long?