“Read My Lips”, Rate cuts are not in our base case – Chairman Powell
As expected, Chairman Powell held a press conference following the conclusion of this month’s FOMC meeting. However, one question, in particular, seemed to fluster the chairman of the Federal Reserve to a greater extent than other questions he is uncomfortable with.
At the end of his 45-minute press conference during the Q&A a reporter from Yahoo finance asked, “Curious, how you view financial conditions now, and if credit were to tighten enough if that would prompt a rate cut”
“I mentioned with rate cuts its a, rate cuts are not in our base case, ah and ah you know so …. That’s all I have to say.”
This is certainly not the most articulate response the chairman of the Federal Reserve has ever expounded. Although his answer delivered a straightforward message his delivery indicated frustration behind answering that question, again.
That being said, the work done at the March FOMC meeting was significant with certain aspects highly anticipated others contained more clarity and timeline than prior press conferences. First, it was widely expected that the Federal Reserve will slow the pace of its rate hikes, and as in January raised rates by ¼%. There was also a reference to the high likelihood that they will have another quarter-percent rate hike at their May FOMC meeting, and then pause the process of raising rates at every consecutive FOMC meeting since March 2022.
While the chairman emphatically denied that there was any foreseeable model that contained a pivot from rate hikes to rate cuts throughout this calendar year, we now have tangible information that the Federal Reserve will raise rates one more time at their next meeting and then pause rate hikes as they assess what effect their actions have had on levels of inflation.
Certain market sectors like US equities focused on the fact that interest rates will remain elevated for a long time. While another asset gold saw the upcoming pause and the softening of strong rate hikes as a welcome change creating defined and strong bullish market sentiment. Gold futures have once again challenged $2000 per ounce as they did at the beginning of the week. In both cases, traders were unable to continue the needed momentum so that gold closed above that key psychological level.
However, in this case April gold futures are holding onto their gains and remain precariously close to that elusive brass ring at $2000 per ounce. As of 5:15 PM EST, the most active April futures contract of gold is up $46.50 or 2.39% and fixed at $1996.10. Gold traded to a high of $2006.10 and a low of $1967.30 which means current pricing is much closer to its daily high than the low.
From the standpoint of market participants actively investing in gold yesterday’s FOMC meeting was a refreshing change from extremely hawkish to a much more accommodative Federal Reserve. This dovishness includes the real possibility that the Fed will only raise rates one more time this year by ¼% and is nearing the end of its hiking cycle.
Wishing you as always good trading,
Gary S. Wagner - Executive Producer