Editor’s Introductory Note; I’ve found Arkadiusz Sieroń to be one of the best of the modern precious metals markets analysts. I selected the following article. It was not solicited. It is re-posted with permission.
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The Fed kept the interest rates unchanged in December. The statement was rather hawkish, while the dot-plot rather dovish. What does such a mix imply for the yellow metal?
Fed Keeps Interest Rates Unchanged
Yesterday, the FOMC published the monetary policy statement from its latest meeting that took place on December 10-11th. In line with expectations, the U.S. central bank left the federal funds rate unchanged at 1.50 to 1.75 percent:
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1‑1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.
The pause means that the FOMC has really completed a “mid-cycle” rate adjustments in October. The decision was unanimous, which confirms that there is no appetite for further cuts among the U.S. central bankers, at least not now.
Another important change was removing the part about the remaining uncertainty about the outlook. Instead, the Fed added the sentence that “the Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity (…)”. It suggests that the U.S. central bank does not expect more easing of its monetary policy in the near future. That’s a rathe hawkish news, which is bad for the gold market.
No More Cuts, No More Hikes in 2020
But do not worry. The Fed published also the updated dot-plot. It shows no rate hikes in 2020 and just one in 2021, which is clearly a dovish change since September where the previous economic projections were published. Back then, the FOMC also expected no rate hikes next year and just one in 2021. But the Fed thought that the federal funds rate would be 1.9 percent at the end of 2019 and 2020, 2.1 percent in 2021, and 2.4 percent in 2022. While right now the U.S. central banks sees the interest rates at only 1.9 percent at the end of 2021, and 2.1 percent at the end of 2022. It means that the future path of interest rates will be flatter than expected.Continue reading“Fed Says No Hikes In 2020. What About Gold?, by Arkadiusz Sieroń”