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Lift off in 10-9-8-7 - Houston we have a problem

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The central bank concluded this month’s FOMC meeting earlier today, alluding to the potential that rate hikes or “lift off” could still begin in December 2015.

Whether or not the initiation of rate hikes will begin this year is not off the table according to recent statements made by the Federal Reserve.

“In determining whether it will be appropriate to raise the target range at its next meeting, the (FOMC) committee will assess progress … toward its objectives of maximum employment and 2% inflation.”

According to the Fed it is still possible that lift off will be initiated at its next policy meeting in December. However this statement lacked any real specifics about the particular data points that would be needed to initiate a rate hike this year. In other words we are left with no more clarity then we had prior to this month’s FOMC meeting.

The reactions to statements made were clear-cut. The US dollar continued its upward climb trading almost ¾ of a percent higher on the day. US equities which had been under pressure, reversed and staged a dynamic rally, taking the Dow Jones industrial average almost 200 points higher on the day.

Gold saw a return to the selling pressure prevalent in the precious yellow metal since trading to an intraday high of approximately 1190. In fact gold traded to an intraday high of 1183 as it traded overseas last night, that however was to be short-lived. As the US dollar regained its composure and began to trade strongly higher on the day it pulled gold down with it.

Interestingly gold was the only precious metal to trade lower on the day, as the other three precious metals (silver, platinum and Palladium) were able to overcome a strong dollar closing in positive territory. According to the Kitco gold index, US dollar strength decreased the value of gold by $8.40 per ounce, whereas normal trading also decreased the value of gold by approximately three dollars.

Although the vast majority of analysts and traders did not expect any kind of rate hike to be initiated this month, most also believed that a rate hike beginning in 2015 was not in the realm of real possibilities.

Rather than adding real clarity, statements made at the conclusion of this month’s FOMC meeting were muddled at best.

However what was highlighted is the fact that a rate hike this year is not off the table. That being said a rate hike initiated in 2015 is in this author’s opinion still highly unlikely

It seems like every time the Federal Reserve initiates countdown to lift off, we hear “Houston we have a problem”.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer