Previewing the upcoming FOMC meeting
Federal Open Market Committee meeting – June 18 -19, 2019
Fed could deliver dovish shock
“The Fed is in the middle of correcting a couple of policy and communication mistakes, and the markets should not be caught off guard if the central bank decides to deliver a surprise rate cut at June 18-19 meeting. While the Fed is historically slow to act, it has laid out the groundwork to officially signal a shift from a tightening bias to an easing one.”
The Fed won’t cut rates at its June meeting. Here’s why
“Not moving next week essentially comes down to three factors, according to Fed watchers: The looming G-20 summit at which the U.S. and China, at least theoretically, could reach a trade agreement; a desire not to be seen as overly influenced by the financial markets and President Donald Trump’s hectoring; and the desire to avoid making December’s rate hike look like a policy mistake.”
USAGOLD note: Cosmetics and substance about to collide?
Fed faces Hobson’s Choice
“The global yield collapse is not so much in response to economic weakness and trade war risks. The global financial system is an accident in the making. China is an accident in the making. Markets are demanding: ‘Give us rate cuts and prepare for aggressive QE – or we’ll give you central bankers the type of vicious market dislocation you are not prepared to contend with!’ The Fed is faced with the Hobson Choice of either stoking the Bubble or waiting for incipient ‘risk off’ – and hoping it possesses the firepower to hold things together. Markets bet confidently the Fed lacks the fortitude to wait.”
USAGOLD note: Mr. Trump himself has made it abundantly clear that he is in step with those market demands. We will get an idea this week where the Fed stands. As someone said recently, it used to be that the Fed was responsible for removing the punch bowl from the party. Now the punch bowl is glued to the table.
The Fed tries to predict politics
“When Jay Powell stepped up to the podium at the Federal Reserve Bank of Chicago earlier this month, he delivered what in Fed-speak amounted to a thunderbolt. Talking about the impact of ‘trade negotiations’ between the US and China, the Fed chairman said: ‘We are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act as appropriate to sustain the expansion.’”
USAGOLD note: Fed meetings do not usually bring out the best in gold, but this time could be different with the level of uncertainty rattling around markets. In that same speech, Powell said tools used during the credit crisis – near-zero rates and quantitative easing – are likely to be deployed again, a course of action to which the Fed had not committed publicly before. He also said that it was time to retire the word “unconventional” when referring to those tools. At first, the gold market pretty much ignored that change in philosophy, but now it seems to be sinking in along with the longer-term implications.