A Blast from The Past

January 4, 2017 - 5:21pm

 by Gary Wagner

Today the Federal Reserve released minutes from the December 2016 Federal Open Market Committee meeting. The December FOMC meeting resulted in a quarter point interest rate hike, the first interest rate hike in 10 years. The December meeting also presented the Fed’s current strategy for rate hikes in 2017. Their “Dot Plot,” implied their intention to raise interest rates a total of three times this year. But this “blast from the past,” also revealed insights into the inner thoughts of the Fed members, which were unknown prior to the release of these minutes.

The minutes contained a much more detailed view of their current outlook, which stated that a “gradual” pace of rate hikes over the coming years would likely remain appropriate. The minutes also spoke about a new concern, based upon the recent presidential election. According to Bloomberg News, “Federal Reserve officials focused on the impact of potential fiscal stimulus during their December policy meeting, with many starting to worry that the central bank might eventually be forced to quicken the pace of interest-rate increases to head off higher inflation.”

The Uncertainty of Fiscal Stimulus

The Fed minutes spoke about a new focus in regards to the risk of fiscal policy, resulting in faster growth than their current forecast. It clearly stated that the future contained uncertainties as to the outcome of President-elect Donald Trump’s fiscal policy, which could result in major tax cuts, regulatory reform, and the initiation of massive infrastructure projects. These factors, according to the fed minutes, “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in the coming year.”

Gold, Silver and US Dollar Move Lower

Both gold and silver had been trading moderately higher on the day, with gold trading to an intraday high of 1168. However in reaction to the hawkish tone of the December FOMC minutes, both gold and silver moved off of their intraday highs to close only slightly higher on the day. As of 3:30 EST, gold futures were at $1164.50, up $2.40 on the day. The US Dollar Index has lost approximately half of a percent in trading today, currently at 102.70.

The Only Thing for Certain is Uncertainty

As we have stated on multiple occasions, the outcome of policies that will be implemented by this new presidency are uncertain. Minutes released from last month’s FOMC clearly state that many members of the Federal Reserve feel exactly the same way.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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