The Daily Market Report: Gold Edges Higher on Soft Economic Data

01-Oct (USAGOLD) — Gold has edged higher within the range amid more downbeat economic data that has caused Fed rate hike expectations to ebb once again. The yield on the 10-year note has fallen back to 2.02%, threatening the August low at 2.00%.

BusinessInsider acknowledges that based on recent data, the U.S. manufacturing sector is in recession. Hardly an environment where the Fed would realistically be talking about a rate hike. Nonetheless, Richmond Fed President Jeffrey Lacker dutifully went out today and said that an October rate hike is possible.

The Atlanta Fed’s GDPNow model saw the Q3 GDP forecast halved to just 0.9%, versus 1.8% on September 28. Slowing growth . . . again, not exactly something that typically would warrant a rate hike.

Maybe the Fed just doesn’t see it coming. “It is a known fact that the Fed has never forecasted a recession (in spite of employing hundreds of nerd economists whose job it is to do precisely that),” said Jared Dillian of Mauldin Economics.

Maybe the Fed needs to deny the reality until the eleventh-hour because all of their policy tools have been expended. Of course that’s not really true. They could still cut to negative rates, or reinstitute QE.

However, I suspect they are loathe to do so because of the severe hit their credibility will take. That’s going to put the Fed behind the curve yet again, worsening the impact of any potential recession lurking just over the horizon.