Hawaii Six O - Gary Wagner
LIFTOFF – Fed announces first rate hike since 2018
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The Federal Reserve concluded its March Federal Open Market Committee (FOMC) meeting today with the anticipated initiation of “liftoff”, or interest rate normalization by raising the Fed Funds rate by ¼%. While today’s rate hike fell within expectations of analysts and market participants there were pronounced changes in the overall demeanor of the Fed’s monetary policy.
In two words, “More Hawkish” characterizes and reflects the current upcoming revisions to the Fed’s monetary policy. First and foremost, the anticipation of a total of three rate hikes this year has changed dramatically with the Federal Reserve announcing that they intend to initiate and implement a rate hike at each of the seven remaining FOMC meetings. This means we can expect to see six more rate hikes this year raising the Fed Funds rate from today’s value of ¼% to ½ a percent another 1 ½% by the end of 2022.
This would take the Fed Funds rate, the target interest rate set by the FOMC which reflects the interest rates commercial banks borrow and lend excess capital to each other overnight, to between 1 ¾% and 2% by December of this year. This is the most hawkish monetary policy that the Federal Reserve has had since the recession following the pandemic began.
While gold prices fluctuated throughout the release of the Federal Reserve’s revised monetary policy statement, it held its ground and performed rather well. Considering that the Fed announced a dramatic and substantial increase in interest rates this year to combat the current level of inflation at a 40-year high, gold prices did not retreat dramatically.
Gold traded to a low this morning exactly at the 61.8% Fibonacci retracement which is currently fixed at $1895.20. However gold trading below $1900 per ounce was short-lived at best with a quick recovery as Chairman Powell spoke. Before the press conference gold had moved back up above $1900 to $1902. During and following Powell’s press conference gold traded off of the lows of the day and for a brief moment traded positive on the day approximately one hour after the conclusion of Powell’s press conference. However, as of 4:54 PM EDT gold futures basis, the most active April 2022 Comex contract is currently fixed at $1925.20 reflecting a decline today of $4.00 or - 0.20%.
The wildest volatility was seen in U.S. debt instruments, resulting in a flattening of the yield curve between short and intermediate U.S. debt instruments. This reflects a dynamic change in market sentiment towards U.S. notes and bonds with the yield on short-term debt instruments rising much more dramatically than longer-term debt assets.
The take away from today’s statement and press conference is simple; while both analysts and market participants widely expected that liftoff would begin today with a ¼% hike in Fed Funds rates, they were taken by surprise when analyzing the revised dot plot which indicated that the Federal Reserve plans to raise rates at each of the upcoming FOMC meetings this year.
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Wishing you as always, good trading,
