The Fed released the minutes to its March meeting today and, while there were few surprises, they lend us insight as to where consumer and wholesale prices seem to be going and how price levels will affect inflation. Reading the entire body of minutes, it seems as if there is conflict among FOMC voting members, but much of the conflict is semantic, or hinges on timing and even speculation on timing for a raise in rates.
The following does not sound like a formula that would signal a move up in rates:
“Real personal consumption expenditures (PCE) appeared to decelerate somewhat going into the first quarter after rising markedly in the fourth quarter. The components of the nominal retail sales data used by the Bureau of Economic Analysis to construct its estimate of PCE declined slightly in January and February, and light motor vehicle sales stepped down; unusually severe weather in some regions in February may have accounted for a small part of the slowing in consumer spending in that month.
“Recent information about key factors that influence household spending pointed toward a pickup in PCE in the coming months. The purchasing power of households’ income continued to be supported by low energy prices, and real disposable income rose briskly in January. Moreover, households’ net worth likely increased as equity prices and home values advanced further, and consumer sentiment in the University of Michigan Surveys of Consumers was still near its highest level since prior to the most recent recession.
“The pace of activity in the housing sector remained slow. Both starts and building permits for new single-family homes declined over January and February. Starts of multifamily units also decreased, on net, over the past two months. Sales of new and existing homes moved down in January, although pending home sales increased somewhat.”
Additionally, the big appreciation of the U.S. dollar has and will continue to affect exports, whether finished goods, parts, agricultural commodities or services. It will have a depressive effect on prices and drive up imports. But the imports will be cheaper and add to downward inflationary pressure. The bright spot in the dollar’s rise has been cheaper oil and other energy commodities.
That savings is going into bank accounts and, to a lesser degree, buying cheaper foreign goods.
None of this bodes well for bullish gold, which is caught in between worlds right now. It is not a haven – there is no storm. It cannot serve as a store of value since the currency it is denominated in is attracting buyers readily. And it isn’t an inflation hedge because there is no inflation.
The Fed did see real GDP as weighted downward, although mostly it was seen as balanced. In that assessment lays the one real hope for gold. GDP slows, stocks tumble – or at least see a strong correction – and gold becomes desirable.
Wishing you as always, good trading,