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Dissent And Debate

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Sometimes the clearest thinking comes from dissenters. In the case of the Fed and the results and blowback from the latest FOMC meeting, that certainly seems the case. It may be only a matter of wording, but there seemed to be a slight policy shift.

The Fed's future policy statements will no longer cite a specific unemployment rate that might lead to its eventually raising short-term interest rates. The Fed instead says it will monitor a "range" of information before approving any rate increase.

Narayana Kocherlakota, president of the Minneapolis Fed, said the shift, which the Fed approved 8-1, will hurt the American economy.

"The new guidance fosters policy uncertainty and thereby suppresses economic activity," Kocherlakota said in a statement explaining his dissent.

Kocherlakota said that lowering the threshold for considering a rate hike from 6.5 percent unemployment to 5.5% would have enhanced the Fed's commitment to low rates until inflation nears its 2% target. Inflation is now running around 1% percent, and the unemployment rate is 6.7%.

Kocherlakota said a better approach would have been a statement saying the Fed intends to keep rates at record lows until unemployment has fallen below 5.5% - as long as expected inflation was below 2.25 percent and any "possible risks to financial stability remain well-contained."

Gold bulls know that faster growth and the threat of inflation are key ingredients for a rise in prices.

But, Kocherlakota may have something in mind deeper than a scarcely even tangential concern for gold bulls.

How can an economic/social entity as large and rich as the United States settle for anything except full employment? Even a 5.5% unemployment rate doesn't bring us to full employment. that begins when we dip under 4%, which should be the ultimate goal of policy. 

Can it be done without damaging inflation? It certainly has happened before. And why pick any number for inflation? The2% level seems a bit of magical thinking to us.

Weekend psychology is an impressive thing. It seems that equities traders became a little weak-kneed heading into Friday afternoon and stopped yesterday's rally in its tracks, although there were only a few drops of blood shed.

Gold enthusiasts behaved exactly in the opposite fashion, bidding up the yellow metal $9.00 to $9.50 at 3:30 PM in New York. So, you have to read some confidence in gold at that development.

Silver is growing more problematic fundamentally.

It fell 5.2% this week, the worst showing since 2013, the four-day slump being its longest since September. What is more troubling is that the industrial metal complex is at its lowest in nine months, as well.

This is the smell of smoke in the house of China burning. Either manufacturing is going to get further slammed, or they have overbought their supply and are now drawing down on metals in house. Or it could be some combination of those two tales. either way, the industrial metals are hurting and silver along with them.

As always, wishing you good trading,

Gary S. Wagner - Executive Producer