FOMC Begins, and Traders Await Fed Statement and Powell’s Press Conference

The FOMC is composed of 12 members, seven of which comprise the board of governors, with the remaining five being presidents of Federal Reserve banks. The eight yearly meetings are roughly six weeks apart, issuing the most current monetary policy by means of a written statement released immediately following the conclusion. This statement summarizes the Fed member’s current economic outlook and any relevant policy decisions that were made over the two-day meeting. Following the statement, Federal Reserve Chairman, Jerome Powell, holds a press conference so that he can discuss any decisions made during the meeting but, more importantly, provide context regarding any decisions they made.

The last time Chairman Powell spoke publicly was at a Wall Street Journal webinar in which he did not push back when asked about rising yields in Treasuries and how they reflect the current monetary policy to keep interest rates where they are at least till the end of 2021, and most likely 2022.

According to the Economic Times, “The Federal Reserve’s monetary policy meeting this week is a chance for the central bank to get back on the same page with the bond market. The challenge will be pushing back market expectations that an interest rate increase could come as soon as the end of next year. How it delivers that message convincingly will be key.”

Although the chairman has made it emphatically clear that the reasons that would justify changing their current monetary course will be much different than in the past, he has gone to great lengths to explain that the Fed has a new basis which is to wait for economic outcomes to be fully achieved before implementing a rate increase, unlike the actions during the financial crisis in 2008. During that period, many economists believed that the Federal Reserve acted too early, thereby lengthening the timeline for economic recovery.

One way that the Federal Reserve will reiterate their commitment to keeping rates low is the release of a summary of economic projections, which will be included in the statement released tomorrow.

However, Chairman Powell must continue to walk a tight rope between the optimistic outlook on economic growth that has been coming from Wall Street as opposed to their monetary policy, which is to raise the bar necessary to implement an interest rate hike. To that end, their former dual mandate of maximum employment and to keep inflation at 2% or lower has been modified. The Federal Reserve is on record stating that they will let inflation run hot to 2 ½% or higher to achieve their primary goal of maximum employment.

Analysts and market participants will listen not only to the words spoken by Chairman Powell during the press conference but how his statements are delivered and how they are perceived.

The major issue right now is that the top members of the Federal Reserve have been reluctant to push back against the recent jump in treasury yields. They will also want to know if the central bank its monthly asset purchases of $120 billion to buy long-dated debt or increase their monthly expenditure.

The bottom line is that more Americans are returning to work. However, that is tempered by the fact that there are still over 9 million Americans unemployed. Although many analysts polled, believe that it is highly possible that there will be some revisions to the outlook, specifically revising of the GDP projections higher.

Recent events had taken gold off of the lows, which occurred on March 8 when gold futures touched briefly below $1680. Currently, gold futures basis, the most active April 2021 contract was trading up $1.10 and fixed at $1730.30. The fact that the Federal Reserve is willing to let inflation run hotter than its former mandate provides a bullish tailwind for the precious yellow metal. When you add the most recent fiscal stimulus aid package passed last week, there is a case to be made for increased bullish tailwinds for the safe-haven asset; gold.

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Wishing you, as always, good trading and good health,

Gary S. Wagner