Abril 20, 2018

Gold Off Two-Week Lows Ahead Of US Central Bank Policy Meet

21 Marcha 2018, 05:04 | Dolorita Barahona



"One big tell is that 2-year yields and expected rates in fed funds futures markets went up yesterday despite the absence of economic data and a seriously downbeat equity market", wrote Steven Englander, head of research at Rafiki Capital Management.

Additionally, another Fed Governor, Lael Brainard, now seems more upbeat on the United States economy. Minutes from the January 30-31 meeting of the Federal Open Market Committee - a gathering that didn't include new economic projections - showed "a number" of policymakers had already upgraded their outlooks for 2018, citing an impact from tax changes "somewhat larger in the near term than previously thought". With that outcome almost certain, most of the speculation is focused on the path of the fed funds rate-specifically, the "dot plot" that signals the committee's rate expectations-for the rest of 2018.

Like most Fed watchers, Levy expects policymakers to raise its key rate another quarter-point Wednesday, to a target range of 1.5 percent to 1.75 percent.

Their years in office were dominated by innovation and experimentation in the face of crisis, an overhaul of how the Fed sets and communicates policy, and sometimes free-form public discussions about social issues like inequality that put Yellen in particular at odds with the Republicans who control Congress. In other words, it isn't boosting growth and isn't slowing it down.

Fed officials also will update their quarterly forecasts for the economy and the path of interest rates this week.

"Obviously a weak dollar is good for us as it relates to trade and opportunities", said Treasury Secretary Steven Mnuchin at the World Economic Forum earlier this year, prompting a sharp decline in the currency.

"There is a greater possibility of the BOK carrying out a rate increase in July as the local economy is faced with more downside risks than expected earlier", said Yoon of Meritz Securities.

Investment bank Goldman Sachs downgraded its forecasts for India's economy on Tuesday in the wake of a more than $2 billion fraud at Punjab National Bank, warning it could spark tighter regulation of the banking sector that would constrain credit growth. Credit card debt, in particular, often comes with a "floating" or "variable" interest rate that rises when the Fed hikes rates. On Friday, we'll hear from FOMC members including Bostic and Kashkari.

The Terminal Rate: Where Will the Cycle End?

The Fed is facing growing economic momentum and a host of thorny problems at a time when only three of seven Governors are in place. As a result, central banks have a tendency to overshoot: they nearly always end a cycle with rates too high, producing a slowdown and often a recession. If it hikes too quickly, it could cause the stock market and USA economy to slow or even tank.

Some interest rates move in tandem with the Federal Funds Rate.

Any rebound, however, is likely to eventually give in to caution ahead of the Federal Open Market Committee (FOMC) meeting overnight on Thursday (Singapore time), with expectations priced in for a 25 basis point rate hike.

Some economists say they think Powell will try to demonstrate at the start of his tenure that he is serious about keeping inflation under control, a central responsibility for any Fed leader.

"Only a confident sounding outlook wouldn't shake the dollar out of its ranges as there seems to be more structural headwinds at play, but if we see many voices leaning towards four rate hikes, that might be a game changer in the short term", said Richard Falkenhall, senior FX strategist at SEB.

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