The Federal Reserve will convene for the last FOMC meeting of the year on Tuesday and conclude on Wednesday, December 18. Investors consider a third consecutive rate cut by the Federal Reserve is almost a certainty. According to the CME’s FedWatch tool there is a 95.4% probability that the Federal Reserve will cut rates by 25 basis points (1/4%) taking the Fed’s benchmark “Fed funds” rate to between 4 ¼% and 4 ½%.
However, the remains uncertainty as to the monetary policy path of the Federal Reserve next year. While Fed members have laid out a clear path of rate cuts to normalize interest rates to approximately 3 ½%, it is the pace or timing of upcoming rate cuts that is unclear.
According to Jon Faust, a former senior advisor to Chairman Powell from 2018 until earlier this year, “Right now, either a cut or a hold could be justified. What officials say about the path of the fed-funds rate is likely to be more important than whatever they decide about the December meeting in particular.”
There is however no clear consensus amongst the 18 other Federal Reserve officials. According to an article in the Wall Street Journal, “Dallas Fed President Lorie Logan warned against cutting too far on what she views as a mistaken belief that a more normal interest rate for the economy is much lower. She compared the situation to a ship captain whose depth finder might mistake mud for water.”
In a speech this month Fed governor Michelle Bowman said, “Given recent economic activity, it’s hard to think that the level of interest rates is restrictive at this point.”
There is also much more conservative group of Federal Reserve officials including chairman Powell that have suggested that they share the concerns of more hawkish officials but do not think that the Federal Reserve is at risk of cutting too much, given how high they lifted rates over the past two years. Last month chairman Powell said, “We’re mindful of the risk that we go too far, too fast, but also of the risk that we don’t go far enough.” It seems like we’re right where we need to be.”
Gold prices have risen modestly today as investors wait the Federal Reserve’s monetary policy decision on Wednesday. As of 5:10 PM ET gold futures-based most active February contract is up $4.30, or 0.16% in fixed at $2670.20. Gold futures of traded to a high of $2683.40, and a low of $2661.40.
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