Fed Decision Disappoints Market Participants

December 19, 2018 - 5:41pm

 by Gary Wagner

The final FOMC meeting for this year has concluded. As was widely expected, the Fed announced that they would implement one more rate hike this year of 25 basis points. That is precisely what was announced at the conclusion of today’s meeting.

However, market participants were also looking for a much more dovish stance and demeanor as it relates to interest rate hikes next year and in the future. The Fed announced that it would raise rates a total of two times next year rather than three.

This was a much more hawkish stance than market participants had hoped for. Traders and analysts were anticipating that the verbiage in the statement released would add the language of “data dependency” rather than speaking purely of the number of times the Fed anticipated rate hikes next year.

Immediately following the release of the Fed statement today, U.S. equities along with gold pricing sold off briskly. Both equities, as well as gold pricing, fell further as today’s statement was followed one-half hour later with a news conference by Federal Reserve Chairman Jerome Powell. While some analysts anticipated that Chairman Powell would attempt to “thread the needle” and balance the Fed statement with a more dovish tone in regards to next year, they were clearly disappointed.

As reported by MarketWatch, “U.S. stocks turned decidedly lower during Federal Reserve Chairman Jerome Powell’s press conference that followed the central bank’s announcement it would raise interest rates by 25 basis points, while lowering the median forecast for rate hikes in 2019 to two hikes from three previously”.

Although the Dow traded to a low of 23,162.64, a decline of 513 points, it did recover slightly giving up 352 points, a 1 ½% drop, and closing at 23,323.66. Clearly, market participants were disappointed in the Federal Reserve’s monetary policy moving forward into 2019.

Gold Flirts with Its 200-Day Moving Average

This morning gold pricing traded to a high of $12,62.20, which for the first time since May of this year briefly breached its 200-day moving average which currently resides at $1,257.40. Before the release of the Fed statement, pricing had given up much of its gains. However, it held pricing in positive territory. Even these gains were short-lived as gold immediately began to sell off following the release of today’s Federal Reserve statement.

As of 5:00 PM Eastern standard time, gold futures basis the most active Comex February contract is currently trading down $7.40 (-0.58%) and fixed at $1,246.20.

Although today’s decision by the Fed is slightly more dovish than previous statements, market participants agreed that current monetary policy remains more hawkish than they had hoped for.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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To say that the Federal Reserve spooked some of the major financial markets today would be an understatement. It was widely anticipated that the Fed would in fact raise interest rates for last time this year, and they did just that. However, market participants had hoped to hear a much more dovish tone in terms of rate hikes next year and in 2020. The more hawkish perceived Fed put major pressure on US stocks as well as gold prices. The dollar reacted by affirming up from the lows of the day.

Now that the final Fed meeting has come and gone there are three primary things we need to focus upon that I believe could in fact be extremely bullish for gold. The first of these things is whether or not there is a government shutdown in about a week. Secondly this current administration has seen the Muller investigation take deeper and deeper into many aspects and could in fact cause tremendous political turmoil next year. Lastly is the current trade dispute, or trade war with United States and China.

These three factors could certainly be extremely bullish influences on gold for the remainder of the year and the beginning of next year.

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