Fed minutes reveal some dissention amongst members

During last month’s FOMC meeting, the Federal Reserve released a statement which was followed by a press conference headed by Chairman Jerome Powell. This was the first occasion since December of last year when the Federal Reserve released their “dot plot”, or their proposed roadmap guiding the course of interest rates over the next few years. The “dot plot” indicated that Fed members had voted to maintain interest rates near zero at least through 2023.

The statement released made it clear that the Fed intended to keep their Fed funds rates near zero. This rate determines the cost of commercial banks borrowing and lending their excess of reserves to each other overnight. It therefore has a great impact on short-term interest rates. Dictating interest rates from banks for consumer loans and credit cards. This rate also has a great influence on longer-term loans such as auto loans and mortgages. The net result is that it helps sets the “prime rate “which is the interest rates given to their most creditworthy borrowers.

Voting Fed members were not completely unanimous on their outlook, and desired forward guidance.

As reported in MarketWatch, “There were two dissents from the new forward guidance from the ten voting members of the committee. It wasn’t known until the minutes were published Wednesday that unease about the new policy was fairly broad among the remaining seven officials who didn’t vote.”

The minutes released today revealed that several Federal Reserve members were hesitant about the proposed strategy, citing that this forward guidance would have the potential to limit the flexibility of the central bank.

According to Bloomberg news the statement revised the Federal Reserve’s longer-term goals and monetary policy strategy elicited relatively modest immediate reactions across markets. Bloomerg’s article added that, “market participants generally viewed the completion of the review as an important milestone; many indicated that growing expectations for the Committee to adopt a flexible average-inflation-targeting regime had influenced asset prices over recent months. In particular, these expectations were viewed as contributing to the recent rise in far-forward measures of inflation compensation, though market participants noted that these measures were still somewhat low by historical standards.”

The minutes began with a statement from Chairman Powell. He began by acknowledging the passing of Thomas Laubach saying, “Thomas was unquestionably one of the great economic minds of his generation, and his research has been central to some of our biggest discussions and policy actions over the past several years. He had a rare and underappreciated gift for translating arcane and academic theory into real world practice. That ability made a real difference in the conduct and communication of monetary policy.” One of the greatest insights gained from reading the statement was that Federal Reserve officials underscored that this new strategy was not “an unconditional commitment” to a particular path of interest rates.

Gold futures closed above the lows achieved both yesterday and today, closing at $1890.50, which is a net decline of $18.30. Our technical studies indicate that strong support still can be found at gold’s 100 day moving average which is currently fixed at $1863.30. Today’s intraday low came in at $1877.10, and traded to a intraday high of $1902.40.

Wishing you as always good trading and good health,