Fed pivot toward interest rate cuts in 2024 and gold’s bullish response

The Federal Reserve concluded its last FOMC meeting of the year, and as expected, they kept their benchmark interest rate unchanged. They also released an updated economic forecast in its Summary of Economic Projections (SEP). The most current projections indicate that central bank officials almost unanimously are anticipating interest rate cuts to begin next year, with the expectations of a ¾% cut taking Fed funds rates to approximately 4.6%.

Seventeen voting members are all predicting interest rate cuts next year, with five officials projecting a decrease of ¾%, five officials anticipating a larger rate cut than ¾%, and the remaining two voting members anticipating no rate cuts next year. According to their economic projections, the Fed believes core inflation will peak at 2.4% next year, which is lower than its projections in September of 2.6%. 

The Federal Reserve is also projecting inflation will cool to 2.2% in 2025 and 2.0% in 2026. Their projections anticipate unemployment rising to 4.1% in 2024 and remaining at that level through 2026. The Fed also anticipates an economic deceleration forecasting growth at 1.4% next year, and rising to 1.8% in 2025 and 1.9% in 2026

Dovish pivot by the Federal Reserve is evident from today’s FOMC meeting

The statement, SEP, and press conference by Chairman Powell all indicate a much more dovish Federal Reserve. In September, they projected the benchmark rate to be at 5.1% next year, this of course was above the most current projections which indicate three 25 basis point rate cuts next year. This also dramatically changed the CME’s FedWatch tool, which is now indicating a 67.4% probability that the Fed will initiate its first rate cut of ¼% at its March meeting, up from a 36.7 % probability yesterday. It also indicates a probability of 12.6% that they will cut rates by ½% in March.

Strong moves in US equities and precious metals in anticipation of rate cuts

The net result was a strong move up in US equities, with the Dow gaining 1.24%, the Standard & Poor’s 500 gaining 1.23% and the NASDAQ composite gaining 1.58%.

The precious metals also had an extremely bullish reaction to the statement and comments by Chairman Powell today. Both gold and silver had exceedingly strong moves to the upside. As of 4:45 PM EST silver futures are up 4.67% with the most active March 2024 futures contract gaining $1.07 and fixing silver at $24.08.

Gold futures basis the most active February 2024 contract is up 2.36%, a net gain of $46.90 taking current futures pricing to $2041.80.

An absolute pivot in the precious metals markets from recent bearish market sentiment to exceedingly bullish market sentiment can be seen in today’s gains in both gold and silver pricing.

Wishing you as always good trading,