Completing the Capitulation: The Entirety of the FED Turns Dovish

Completing the Capitulation: The Entirety of the FED Turns Dovish

Written by Nathan McDonald, Sprott Money News

As previously forecast, the FED has once again taken a step back from its stance on raising interest rates, admitting that the economy as a whole appears to be on shakier ground than they once thought.

This complete and utter capitulation by FED Chairman Jerome Powell has shocked many market participants. However, for those who have been closely following his statements since early December, it was quite predicable.

The farce is over, and the FED has proven that they are beholden to the markets, which not only demand lower rates, but need them to continue growth.

Interest rates, at least in the short to medium term, will either remain unchanged or decrease. Anything else and the markets will revolt, resulting in a collapse in prices that will make 2008 look like an opening act.

This is a sharp change in sentiment from just a few short months ago, when the majority of FED members were predicting that two interest rate increases throughout 2019 would be appropriate and necessary.

Now the Federal Open Market Committee has voted unanimously to leave rates unchanged, proving that the committee has discarded all hawkish intents and turned incredibly dovish.

Currently, the FED holds the benchmark funds rate in a range of 2.25 percent to 2.5 percent, which is used to determine the majority of adjustable rate consumer debt (like credit cards, lines of credit, etc.).

As a result, 10-year treasuries crashed to their lowest level in over a year, while the broader markets received the news positively, as rising rates would significantly impact consumers’ ability to spend.

In addition to announcing that no further rate increases would be coming throughout the remainder of 2019, the FED also stated that they would not change their current stance unless something significant changed within the markets.

This came as positive news to President Trump and his administration, which has been in a series of recent public disputes with the FED over its "raising rates" rhetoric.

The reason for this, of course, was that the FED's hawkish talk was causing sharp moves higher and lower in the markets.

Given how closely President Trump has tied himself to the rising stock markets, this volatility caused him much grief, as a crashing market would reflect poorly on his presidency—and not help his chances of a 2020 reelection.

Unfortunately for President Trump, the reason the FED has given to justify their drastic change in position is not good.

Despite one of the best job markets in decades, the FED has downgraded its economic forecast, reducing GDP growth expectations as they see a slowdown in consumer and business investment spending in the first quarter of 2019.

What this means for precious metals and the markets as a whole is that at least for now, the punch bowl is going to remain full and the party will continue on.

Easy money is here to stay, and thus real inflation will continue to move higher. This will ultimately result in a higher price in both gold and silver bullion when they inevitably break free from their shackles and soar higher, adjusting to the unfathomable fiat money that has been injected into the system.

 

Completing the Capitulation: The Entirety of the FED Turns Dovish

Written by Nathan McDonald, Sprott Money News

 

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The Operative Word for Gold and Silver? Patience - Weekly Wrap-Up (March 22, 2019)