While it is a widely accepted assumption that the Federal Reserve has completed its rate hike cycle, the Fed has been very close to the chest regarding when it will initiate its first rate cut. It is almost a certainty that it will not occur tomorrow. According to the CME’s FedWatch tool, the probability of the Fed cutting rates tomorrow has a 2.3% of occurring.
Up until a month ago market participants were overly optimistic, believing that the Fed would initiate its first rate cut in March. At the time, the CME’s FedWatch tool assigned an almost 90% probability that the Fed would begin rate cuts in March. Today, the CME is assigning the probability of a rate cut of 0.25% at 43.2%. The probability of a 0.5% rate cut is only 0.7%. This leaves the highest probability of 56.1% to the Fed maintaining its current interest rate level at the end of the March FOMC meeting.
According to a CNBC Fed survey, just 9% of the respondents believe the first-rate cut will occur in March, and the majority of respondents (70%) believe that will be June before the Federal Reserve initiates its first interest rate cut.
The final decision by the Federal Reserve tomorrow will be released at 2 PM ET and will be followed a half hour later with a news conference by Chairman Jerome Powell. Analysts and market participants will be laser-focused in parsing each word in the Fed statement, as well as Chairman Powell’s pre-delivered opening speech. They will be looking for any clue or indication as to when the Federal Reserve anticipates when the central bank will begin its cycle of rate cuts.
Gold prices have been on the rise reacting to weakness in the dollar and treasury yields and an extreme uptick in geopolitical tension. The uptick in geopolitical tension is a result of an aerial attack on a US military base in Jordan near the Syrian border which killed three soldiers and injured 40.
Gold basis the most active April futures contract gained $6.30 and settled at $2050 per ounce. Spot gold gained $3.80 and is currently fixed at $2037.60.
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Wishing you as always good trading,
Gary S. Wagner
