2025 Warning: Why Rate Cuts Won't Save You

The fact that central banks are easing even while inflation is high indicates systemic financial risks, suggesting that they may be prioritizing liquidity over price stability. This could mean that certain parts of the financial system are under pressure and require lower interest rates to remain functional.

- Food Prices: Grocery inflation remains high, with essential goods like milk, juice, and coffee hitting record prices.

This situation presents a challenging trade-off for central banks: raise rates and risk triggering a financial crisis, or cut rates and allow inflation to remain elevated, impacting the cost of living. The end result is a stagflationary environment—high inflation with slowing economic growth.

- Europe: Forecasted growth is below 1%.

High interest rates from 2022-2023 have already slowed borrowing and investment, and the impact is now being fully felt. Inflation is draining consumer purchasing power, reducing discretionary spending. Governments continue increasing debt to fund programs, but real economic productivity is not keeping pace. Businesses are hesitant to expand due to economic uncertainty, further stalling growth.

The global economy is entering a stagflationary cycle (low growth + high inflation), which is one of the most difficult economic conditions to escape from. This means central banks cannot simply print their way out of trouble—doing so would exacerbate inflation.

The more debt a country has, the more difficult it becomes to fight inflation, because excessive money printing devalues the currency. The U.S. is currently running the largest fiscal deficits outside of wartime, meaning future generations will be burdened with ever-increasing debt obligations. If central banks continue cutting rates, it could fuel even more government borrowing, worsening the problem.

The ongoing U.S.-China trade tensions are a major driver of inflation, causing import costs to rise and affecting consumer prices across a wide range of goods. Trade disruptions have led to delays and shortages in goods, causing price hikes that aren’t easily mitigated by rate cuts. The shifting global trade dynamics, including tariffs and sanctions, are adding to the inflationary pressure on key consumer products and materials.

Rising wage inflation and increasing input costs are leading corporations to pass on higher costs to consumers. In industries such as manufacturing, logistics, and services, companies are absorbing the increased labor and material costs and subsequently raising prices on their products and services. This persistent cost-push inflation is fueled by labor shortages and rising demand in key sectors.

Conflicts, sanctions, and global tensions are limiting supply availability in critical sectors, from energy to agriculture. Geopolitical risks such as the Russia-Ukraine war and ongoing tensions in the Middle East are disrupting supply chains for essential goods, including oil, gas, and food, leading to price increases. These disruptions will likely persist as long as geopolitical instability continues to limit global supply flows.

The transition to renewable energy is costly, and investments in fossil fuel infrastructure have significantly declined, leading to higher long-term energy prices. Increased demand for cleaner energy sources, coupled with a lack of sufficient renewable energy capacity, is creating higher costs in the energy sector. As global economies move toward net-zero emissions targets, energy prices are expected to remain volatile, adding to inflationary pressures on both businesses and consumers.

Copper, while showing a more modest 4% YoY growth, is expected to see a significant rebound in 2025 due to worsening supply deficits and growing demand driven by the green energy transition. As copper is essential for electric vehicles, solar energy, and electrical grids, its price is projected to rise as the global push for sustainable technologies intensifies. Geopolitical risks and years of underinvestment in mining only compound the pressure on supply, creating a strong outlook for copper's future performance. The bullish trends in gold, silver, and copper suggest that these metals will continue to play pivotal roles in both the financial markets and the ongoing transition to green energy.

Investors are moving toward tangible assets to hedge against currency devaluation and inflation. Supply constraints, rising demand, and currency devaluation are expected to continue driving the price appreciation of precious metals in the near term. With inflation showing no signs of abating and central banks continuing their rate-cutting policies, commodities like gold, silver, and copper are expected to perform well as alternative investments.

Bond yields are expected to remain high due to ongoing inflation, making government and corporate bonds less attractive as long-term investment options. The persistent risk of rate cuts and inflation could make fixed-income assets less reliable for long-term gains. The recent spike in bond yields, spurred by an unexpectedly strong jobs report, has sent shockwaves through global financial markets. The yield on 10-year Treasurys peaked at 4.772%, while 30-year Treasurys touched 4.962%, unsettling investors who fear economic instability from potential tariffs and growing budget deficits linked to certain policies. This situation has led to a selloff in both stocks and bonds, as investors reassess their portfolios in light of rising inflation expectations and potential fiscal challenges.

The real estate market is expected to face pressure as borrowing costs remain elevated, making it harder for individuals and businesses to finance property purchases. Higher home prices and rents may continue, but demand for new real estate development could slow due to tighter credit conditions. However, there is optimism in certain sectors. The Australian commercial property sector, for instance, is expected to recover in 2025, driven by controlled costs and potential interest rate cuts. Top executives of major companies anticipate a valuation recovery as demand increases, with calls for tax and labor reforms to support the sector's recovery. This suggests that while challenges persist, there are opportunities for growth in specific real estate markets.

​As inflation persists and financial risks mount, investors will need to consider how to adjust their portfolios to mitigate these challenges. The outlook for the economy and markets remains uncertain, but precious metals offer a strong hedge against these volatile conditions.