A divided Federal Reserve

As expected, a statement was released after September’s FOMC meeting by Chairman Powell. During his Press conference he expressed that tapering will begin “soon” with no clear-cut date for the initiation of the onset of tapering. The release statement said that “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”

The statement acknowledged that for the most part, the economic recovery continues to strengthen. “With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen.” However, the statement also expressed the largest risk factor facing a full economic recovery.

“The path of the economy continues to depend on the course of the virus. Progress in vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain … In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

It was the release of the Federal Reserve’s interest rate projections (dot plot) that showed that Federal Reserve members are very divided in regards to when they will initiate “lift-off” and normalize rates. The only timeline in which Fed members voted unanimously was to hold interest rates at their current level throughout 2021. However, as to 2022, Federal Reserve members were split down the middle with nine of the 18 top officials indicating no interest rate hikes in 2022, and nine of the 18 top officials signaling lift off at some point in 2022. Six members voted to raise interest rates by 25 basis points, to ½%, and the remaining three more hawkish top officials suggested taking interest rates to 75 basis points or ¾%. The division becomes pronounced in 2023 with a much wider range for their forward guidance. The dot plot indicates that there is a tremendous range between Federal Reserve officials beginning in 2023 with the 18 members projecting six different levels of rates.

Gold had wild price variations and fluctuations with December 2021 futures trading from a low of $1764 60 to a high of $1788.40. As of 4:50 PM EDT gold futures are currently fixed at $1768.50. The chart included in this report is a simple three-minute line chart with gold pricing on the top and the dollar index below it. It is apparent the negative correlation between gold and the dollar was evident today. It is also clearly apparent extreme volatility was caused by today’s FOMC statement and press conference.

Wishing you, as always, good trading and good health,