Fed to Stay the Course, At Least Until Next Week

Today the Federal Reserve released its “Monetary Policy Report” to members of the Senate and House of Representatives. The summary indicated that the economy and the labor market continue to grow, while inflation remains below their long-term objective of 2%.

According to today’s report, “Economic activity increased at a solid pace over the second half of 2017, and the labor market continued to strengthen. Measured on a 12-month basis, inflation has remained below the Federal Open Market Committee’s (FOMC) longer-run objective of 2 percent.”

Economic growth was clearly visible in the GDP. “Real gross domestic product (GDP) is reported to have increased at an annual rate of nearly 3 percent in the second half of 2017 after rising slightly more than 2 percent in the first half.”

The report also acknowledged that their current interest rate policy would remain accommodative with gradual increases to the target range for the Fed fund’s rate.

This rate, which currently resides in a range of 1 ¼ to 1 ½, was raised twice during the first half of 2017 with a final hike in December.

“Even with this rate increase, the stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”

The net result of today’s semiannual Monetary Policy Report was that in all likelihood the Federal Reserve would stay the course and implement three, not four, interest rate hikes this year.

Next week’s testimony to Congress by Fed Chairman Powell could shed additional insight. However, it won’t be until next month’s FOMC meeting that investors and traders will look at to see if the first-rate hike of 2018 is implemented.

At least for now, today’s report was a catalyst to the 347-point daily gain in the Dow Jones Industrial Average. It also muted any significant moves in either the U.S. dollar or gold. Gaining just over a 10^th of a percent, the U.S. dollar index closed fractionally higher at 89.77, and gold futures closed at 1,331.20 which is down $1.50 on the day.

Our technical studies indicate minor support at $1,317, which is the 38% retracement of the last rally, and $1,302 which is the 50% retracement. The first resistance level is $1,336, with major resistance at $1,360-$1,365, the highest price point gold achieved during the most recent rally.

Wishing you as always, good trading,