Hawaii Six O - Gary Wagner
The Fed Continues To Use Restraint With No Anticipated Rate Hikes
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They say that the only certainty is death and taxes. However, in the case of this month’s FOMC meeting, the CME FedWatch Tool is predicting that there is a 98.7% probability that the Federal Reserve will not announce an interest rate hike at the conclusion of tomorrow’s meeting.
Many analysts are predicting that the Fed will continue to place emphasis on their current monetary policy, reinforcing that patience will continue to be at the forefront of their actions and timelines of future rate hikes.
This more dovish stance emerged in January when the Federal Reserve’s statement revealed a willingness to hit the pause button in regard to future rate hikes this year.
Then at the end of February, Fed Chairman Jerome Powell took that dovish stance one step further. In a speech he revealed that the Federal Reserve plans to take their balance sheet asset liquidation off of autopilot. The net result of the Federal Reserve’s quantitative easing program was a major accumulation of assets which reached a apex of $4.5 trillion worth of bonds and mortgage-backed securities.
Quietly the Fed had been liquidating a set amount of their assets, this liquidation began at $10 billion per month and ramped up in quantity every three months. Since the beginning of their planned liquidation this program has run on autopilot and to date has reduced their balance sheet which now is just above $4.2 trillion. Even more interesting is the fact that Powell said that they would stop liquidating assets when the balance sheet reached $3 trillion.
And the Federal Reserve is not alone. The European union and China are both creating a more favorable environment for economic growth. The European central bank announced that they would not raise rates until the end of the year.
The Chinese plan to spend about $1 trillion on their “Belt and Road Initiative”. As reported by Belt & Road News today “Yi Dai, Yi Ly” is a phrase that everyone in China knows. The Belt and Road initiative or what others call the “New Silk Road” is the largest infrastructure program of all time.
This news has been favorable for the precious metal’s markets. As of 4:00 PM Eastern standard time gold futures, basis the most active April Comex contract is up $4.70 and currently fixed at $1306.20. Dollar weakness is providing tailwinds for pricing. The U.S. dollar index is currently trading off by .19%, and gold futures are currently trading up .37%. This reveals that there is an equal contribution from both market participants and dollar weakness.
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Wishing you as always, good trading,