The FOMC has changed gears and has indicated they are ready to start cutting rates, the first down move since 2008. In today’s meeting is all but certain that we will see a 25-basis point cut, the 50-basis point cut is basically off the table. The big question now is whether more rate cuts are needed in the future as economic data still remains relatively strong. The news will come in the Fed’s statement as they clarify their position for the future.
Federal Funds Futures has two additional rate cuts priced in for this year and one for next year, but it seems the futures markets have got a little ahead of themselves according to retired Fed Chairs Yellen and Greenspan. During an event at Aspen Institute Yellen explained “I think in light of the risks, I would be inclined to cut a bit… wouldn’t see this as the beginning, unless things change, of a major easing cycle."
Notable: At least 6 former Fed officials have taken the unusual step of speaking out ahead of Fed's big decision
Sarah Bloom Raskin
Their message? Only 1 interest rate cut is likely neededhttps://t.co/sD5gUQRBwn
— Heather Long (@byHeatherLong) July 30, 2019
In general, the economic data is still relatively good, and the Former Fed chairs seem to agree. This cut is seen mostly as an insurance cut, trying to ramp up economic growth once again. This cut could mark the beginning or the end of the cutting cycle as the Fed will assess the data before making another decision.
Gold Price Action
Gold price has held relatively steady over the past week as the market awaits the Fed’s decision. At this point the market is looking to the comments that will come after the rate decision. Should we see the Fed express data dependence and hesitance towards more rate cuts, we would most likely see gold take a hit as the Fed Funds futures currently predict two more rate cuts for this year.
Previous Fed chairs have already expressed that they think this cut will be enough for now, if the Fed’s comments reiterate this point that will give gold and the stock market a reason to sell off.