No Surprises From The Fed And Markets Leap Up And Roar

As anticipated, the U.S. Federal Reserve stood pat on interest rate increases. This impacted all markets today, particularly crude oil and gold.

Equities were up solidly, though less spectacularly than other sharply accelerating investor areas.

At 4:15 PM in New York, West Texas Intermediate is up nearly 6.00% on the day while Brent North Sea is up 4.00%. Both traded crudes reversed a two-day slide that saw traders wary of how the Fed would tilt on rates.

Gold prices rose nearly $30.00 on a day that saw concerns about future inflation sneak onstage because of low interest rates. We are still deeply convinced, however, that gold is operating as its own freewheeling investment opportunity consolidating its profitability amidst volatile street signs plaguing other investments.

As could have easily been forecast, bond yields fell in reaction to Fed rates that will stay between ¼% and ½% at least until the nest FOMC meeting in late April.

The yen strengthened again the U.S. dollar by 0.50% but it was the euro that was overpowering against the greenback, moving up a dramatic 1.10% on the session. In fact, dollar weakness accounted for roughly $13.00 of the rise ($29+) in gold prices.

There was no real secret lying hidden in the Fed news release after the current meeting. Indeed, the statement could be from almost any meeting over the last few years:

“Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft.

“A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months; however, it continued to run below the Committee’s 2% longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

“The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2% over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.”

If you think about it, how could the statement have said anything much different than what is set down above.

The Fed sees the same statistics that you and we see. With no huge stimulus from the Congress and obstructionism the watchword of the day (decade?), interest rates better stay low or we will have an economic calamity on our hands.

There is a good question on the horizon, though: How long before the Fed must keep its promise to raise rates a few times this year? The pressure will begin to tell as early as six weeks from now.

Wishing you as always, good trading,