On Monday investors looked at Greece. Now, their eyes are on the FOMC’s meeting, which started yesterday and will last until today. Investors await the Fed’s statement and the outlook for the global economy after the European and Swiss central banks’ recent actions.
Although most of the investors still expect interest rate hikes this year, there are growing expectations that the Fed will take a more dovish turn. Some analysts have already changed their views that Fed will raise rates in June and now they expect that it will happen in September or at the end of the year. They provide three arguments for that.
First, the plunge in global oil (and also other commodities) prices has pushed inflation further below the Fed’s target. Second, the strong U.S. dollar has made the prices of imported goods and commodities lower, which has lowered the CPI further.
Third, current easy global central banking policies may influence the Fed’s stance. In this race to ease – just recall the Abenomics in Japan, the quantitative easing in Europe, more dovish than expected minutes of the Bank of England, interest rate cuts in Canada a week ago, and the possible interest rate cuts in Australia in February – the Federal Reserve may not want to be the only hawk in the dovish camp and have a too strong U.S. dollar.
To sum up, dovish global central banking policies and low consumer price inflation may still keep the Fed patient about a rate hike. It would be good news for the gold market, because the U.S. dollar will be weaker without a rate hike, and weak greenback often implies high gold prices. The second reason why the Fed’s patience may strengthen the gold is the fact that the yellow metal often rises on Fed rate hike uncertainty.
Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor
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