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USAGOLD/Peter A. Grant/02-23-17
Gold surged to new highs on the year in early U.S. trading, boosted by firmer bonds and a weaker dollar. The yellow metal cleared resistance at 1244.71, which led to follow-through above 1250.00 and new 15-week highs.
Treasury Secretary Steven Mnuchin was on CNBC this morning talking tax reform. He acknowledged there wasn’t much the Administration could do to boost growth in the short-term, but that tax reform would ultimately bear fruit. He said that it may take until the end of next year to see “sustainable growth of 3% or more.”
That tempering of growth expectations suggests that the Fed might have to take a more cautious approach to the rate hikes that everyone believes are in the cards for this year. The Atlanta Fed’s GDPNow model currently anticipates Q1 growth of 2.4%. The Blue Chip consensus is running around 2.2%.
After seeing just 1.6% annualized growth in 2016, markets were hoping for something better this year. Mnuchin is suggesting we may have to remain patient for another 18-months. If that is indeed they way things will unfold, tighter monetary policy could provide a considerable headwind.
Of course the Fed relies on their own models, but even Janet Yellen acknowledged last week before Congress that growth has been “quite disappointing.” So what’s the Fed to do? Well the market seems to think that three hikes this year is still too optimistic. I think they hold in March and then take a more serious look at another hike mid-year.
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