Today we discuss whether the FED FOMC is going to cut rates once or twice more in 2019 and what are its implications. Gold & Silver Weekly Update w/e 25th October 2019
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Today is Sunday 27th October 2019 and we are briefly looking at the most important date for this week – Wednesday 30th October when the FOMC of the FED will announce its decision on interest rates and what is likely to happen thereafter.
Bloomberg reported on Friday that the majority of economists they surveyed (40) between 21st – 24th October – some 85% said that they:
"anticipate the Federal Open Market Committee will reduce rates by a quarter percentage point when it wraps up a two-day meeting in Washington on Wednesday. That would lower the target range for the Fed’s benchmark rate to 1.5%-1.75%."
They then added that:
“56% of respondents said in the event of such a cut, policy makers would telegraph, either in their policy statement or through Chairman Jerome Powell’s post-meeting press conference, that they are likely to pause for some time before making another rate move.”
Thomas Costerg, senior U.S. economist at Pictet Wealth Management in Geneva told Bloomberg that:
“It might well be a hawkish cut as Powell will likely signal some resistance to cut rates more”
This to some degree is supported in that the FED has already cut rates twice this year – in July and September and FED Chair Jerome Powell made it very clear that the last cut was more of a form of ‘insurance’ than an economic necessity.
There is so far still strong jobs growth and quite high consumer confidence and spending, but inflation is lower than targeted and the rest of the major economic powers are slowing down and in the case of Europe and japan are into negative interest rate territory.
To be frank, we would not favour reducing rates this month but leave it until December, the FED is under so much pressure both with liquidity issues and President Trump constantly haranguing them, we tend to agree with the other economists that they may as well reduce rates now in October and then wait until the New year to see how the Christmas trade and the China trade negotiations pan out. It will also give them the opportunity to reduce rates again in December if the economic position deteriorates dramatically before then.
Interestingly the Economists polled assigned just a median 30% probability that the FED will cut rates all the way to zero before the end of 2020. With the Presidential elections due by then, and assuming President Trump is still in office and is fighting for a second term, we can all be quite confident that he will be exerting as much pressure as possible to get rates down to 0% by mid-year or the third quarter at the latest.
Currently 2-year treasuries are offering an yield of 1.63% and 10 year Treasuries are being offered at 1.805% its highest level since September 17th
So, the inverted yield curve has at least disappeared for now and rates are slightly rising – suggesting that future cuts may not be quite as aggressive as first anticipated. But as a week is a long time in politics, a month is a long time in economics – especially in today’s rather chaotic environment.
What will happen for certain no-one knows – not even the FED but this week’s press Conference after the FOMC decision is crucial and depending upon what is taken away on Wednesday and the economic data then due out on Thursday and Friday will give investors and traders a good indication as to where the dollar and the price of gold and silver is likely to be headed.
China, Iran and now Turkey all have the potential to upset even the best laid plans and whilst Brexit has been delayed yet further, we still cannot ignore its potential impact on the West either.
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