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Read My Lips: No More Rate Cuts

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It will be remembered as one of the most famous broken promises in political history. In 1988, George H.W. Bush stood before delegates to the Republican National Convention and declared: "Read my lips: no new taxes."

According to Time Magazine, these six words became one of the most enduring quotes of Bush’s presidency. However, it also caught him in a political snare. “At a time of major budget deficits and spending needs, Bush was — as many had predicted — unable to get by with cuts alone.”

As was widely expected today, at the conclusion of this month’s FOMC meeting they released their monetary policy statement which revealed that they decided to lower interest rates by ¼%. However, the real fireworks began when Jerome Powell held a press conference with a prepared statement and Q&A.

In his prepared statement Chairman Powell said, “Since the middle of last year, the global growth outlook has weakened, notably in Europe and China. Additionally, a number of geopolitical risks, including Brexit, remain unresolved. Trade policy tensions have waxed and waned, and elevated uncertainty is weighing on U.S. investment and exports”

What analysts and market participants wanted to know was the forward path of the Federal Reserve in regards to more rate cuts. While Chairman Powell did his best to leave all options on the table, one revealing statement from him was that he thinks “the current economic situation merits moderate adjustments to the fed-funds rate to achieve the central bank's goals, a sign he doesn't expect this to be the start of a long cutting cycle.” This according to the Wall Street Journal.

The lack of any concrete intentions for the Fed’s monetary policy which would lay out how many more rate cuts the Fed plans on initiating this year, and first quarter of 2020 left many analysts and market participants interpreting today’s information as less accommodative and dovish than expected.

This put pressure on the precious metals complex with gold and silver trading lower on the day. Once the statement was released gold remained steady trading well above $1500 per ounce. However once Chairman Powell took the podium market participants witnessed a steady and methodical decline in pricing. Gold futures which were trading at approximately $1510 broke below $1500 per ounce for a brief instance, before slightly recovering. As of 5:15 PM EDT gold futures are currently down $11.70 (-0.77%) and fixed at $1501.70. Silver futures which opened above $18 today also traded lower during Chairman Powell’s press conference and is currently fixed at $17.81 after factoring in today’s decline of 32 ½ cents.

The key to today’s statement and Chairman Powell’s press conference is that by stating he does not expect this to be the beginning of a long rate cutting cycle, he might just have created a similar dilemma to George HW. Bush in that he is making a promise that many believe is impossible to keep.

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Wishing you as always, good trading,

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