GoldPrice.

Gold prices are lower this afternoon but are recovering from the day’s lows following the announcement of a second-consecutive 0.25% cut to short term interest rates by the Federal Reserve, and the press conference by Fed Chairman Jerome Powell that followed.

Maybe the most surprising thing about today’s FOMC meeting, given all the lead-up to it, is that there isn’t a whole lot to talk about, but I’ll do my best.

A Second Consecutive Rate-Cut and New (but The Same) Economic Projections

As was widely expected by analysts and commentators, the Fed delivered an identical “insurance cut” to July’s which itself was the first rate cut since the Great Financial Crisis ten years ago. The 0.25% cut wasn’t the only identical move, however, as the language of the committee’s statement accompanying the announcement was almost indistinguishable from July 31.

The staff economic projections, released quarterly, were also similar to the previous vintage published in the spring. Communicating through those numbers, the committee left its expectations for inflation effectively unchanged while moderately increasing their expectations for US economic growth and the rate of unemployment (which would still, arguably, be close to “full employment.”) Precious metals and Dollar traders certainly interpreted the initial release as a very hawkish rate cut, as the Greenback ripped higher on the news while gold prices collapsed to and through $1500/oz. At the same time, the major US stock indices were selling off and buyers were stepping into US Treasuries.

While a $10-15 drop in gold prices isn’t negligible (although, up or down, moves of that size have become much more common over recent months,) the aggregate market reaction to the Fed’s announcement felt relatively muted. Perhaps it was because of the fractured feeling of the statement and the data released. The FOMC gave the equities market another cut that it wanted, but not the full 50bp that seems to be fully priced-in for 2019 and some wanted all at once. And the committee still pointed out its concerns about damage done to the global economy by the trade war, but those concerns weren’t reflected in any downgrade to economic projections or higher shift in the dot plot—in fact, the “median dot” this time around represents no additional rate cuts in 2019, with only seven of the 17 members expected additional easing.

Most important Fed headline: the divide inside the Fed grows. 7-3 vote to cut. 7 predict another cut this year. 10 say hold or raise

— Sara Eisen (@SaraEisen) September 18, 2019

 It was clear from the committee’s statement and the Staff Economic Projections that there is a marked lack of consensus within the FOMC, and that seemed to leave big parts of the market unable to fully commit to any kind of reaction.

Chairman Powell’s Press Conference

The mood and subtext of the Chairman’s press conference seemed to paint the actions and outlook of the committee in a much more dovish light than did the initial statement, with Jerome Powell underlining the Fed’s willingness to act (again) if it were necessary in order to prolong the current economic expansion (which also confirms that, at least for now, the Fed views the protection of the current expansion as its responsibility.)           

All-in-all, while Powell in his Q&A regularly took the position that the committee isn’t anticipating a need for further easing or stimulus, much of his language was phrased to indicate that the Fed won’t hesitate to “act as appropriate.” In the context of our current situation, it’s clear that could mean acting to prevent an actual recession or acting because the market is threatening to throw a tantrum (see Winter 2018/19.)

As Powell’s press conference moved into the later, less relevant stages, equity markets and gold prices curiously remained suppressed. I made a note wall watching the Q&A that it seemed like markets were focusing on the wrong thing: focusing on the “disappointment” of not getting an aggressive 50bp cut today, rather than the signals Powell seemed to be sending that ultimately further easing is still possible. The major stock indices were in the red and gold prices had fallen though $1490 during the Chairman’s presser.

At the time of writing, it seems as though that concern has turned a corner and the markets have sorted themselves out. US stocks have risen back above their pre-FOMC levels and gold prices are trading back around $1495/oz heading into the global close. The Dollar remains a big winner for today.

As we head into Thursday and on to next week, there’s a strong sense that the Fed’s next move really is undecided (as opposed to the last few weeks, when another rate cut was all but preordained,) and largely dependent on how the US economy is measured to be performing in the coming weeks. To that end:

seems like high frequency U.S. data starting to gain more hold in reaction function again relative to generic trade/lowflation concerns https://t.co/xmVeNALTQ2

— Luke Kawa (@LJKawa) September 18, 2019

Couldn’t have said it better myself.

Anybody know a good place to find coverage of all that macroeconomic data?

Oh, right.

I’ll see you on Friday, traders.