The Fed’s Core Message: More Rate Hikes On The Horizon
EDITOR'S NOTE: In a widely expected move, the Federal Reserve announced its decision to maintain the target range for the federal funds rate. However, the core message delivered by Chairman Powell in today's statement and press conference was far from dovish. The Federal Reserve made it clear that its monetary policy will continue to be restrictive and hawkish, signaling the possibility of two more rate hikes before the year comes to a close. While the decision to keep rates unchanged may seem like a temporary reprieve, it serves as a strategic pause to assess additional information and implications for monetary policy. The release of the dot plot revealed the projections of 18 Federal Reserve officials, with a majority indicating higher rates in the future. Against this backdrop, investors are left to navigate an uncertain economic landscape, making it wise to consider allocating funds to gold as a safeguard against potential market turbulence. In this article, we delve into the Federal Reserve's message and the importance of gold in preserving wealth amidst ongoing monetary policy adjustments.
As anticipated the Federal Reserve announced that the "committee decided to maintain the target range for the federal funds rate at 5 to 5 ¼%". However, the core message as expressed in today's statement and press conference by Chairman Powell was that its monetary policy will remain restrictive, hawkish, and most likely include two more rate hikes before the end of the year.
"It will be appropriate to cut rates at such time as inflation is coming down really significantly. And again, we're talking about a couple of years out…As anyone can see, not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate."
A significant component of today's message was that the purpose of maintaining (i.e., not raising rates) the Fed's benchmark rate was not to signal an end to rate hikes but rather to give Federal Reserve members time to "assess additional information and implications for its monetary policy".
Four times a year the Fed releases a summary of participants' projections through the SEP (Summary of Economic Projections). According to the Fed, this document contains "participants' projections for GDP growth, the unemployment rate, inflation, and the appropriate policy interest rate". The projections from all 18 Federal Reserve officials are expressed as individual votes and placed on the FOMC dot plot.
Source: Kitco News
The dot plot released today indicates that 9 of the 18 participants are projecting Fed funds rates to be at 5.625%, two at 5.875%, and one at 6.125% by the end of 2023. The remaining six votes project rates at 5 ½% or 5% by the end of the year.
Stock indexes closed mixed with the S&P 500 gaining 0.1%, the Dow Jones industrial average falling 0.7%, and the NASDAQ composite rising 0.4%.
Source: Kitco News
As of 5:31 PM EDT, Gold futures basis the most active August contract is trading lower by $2.90 or 0.15% and fixed at $1955.70. Silver futures basis the most active July contract gained $0.19 or 0.79% and is currently fixed at $24.01.
Source: Kitco News
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Wishing you as always good trading,
Originally published by: Gary Wagner on Kitco News
