As expected, the Federal Reserve concluded the July FOMC meeting with the announcement that they will raise rates by 75 basis points or 3/4%. While this was overwhelmingly expected instead of a rate hike larger than 1%, there were subtle changes in the statement as well as comments made by Chairman Powell during the press conference.
A change in the president’s tone
In essence, for the first time in a press conference this year, the president struck a slightly more dovish tone than he has previously expressed regarding rate hikes. While he continued with the line that all future decisions will depend on the data, he added for the first time since the Fed began raising rates that the Federal Reserve considers it “probably appropriate to hold back on increases at some point.” . That said, he didn’t offer any real insight into a timeline of when that might happen.
With the second quarter GDP report due out tomorrow and the Atlanta Federal Reserve’s advance estimates predicting an economic contraction of 1.6%, Chairman Powell put a spin on the current economic outlook.
“I don’t think the United States is currently in a recession, and the reason is that there are too many areas of the economy that are doing too well. Growth is certainly slowing down for reasons that we understand. Growth was exceptionally high. last year, 5.5%. We would have expected growth to slow. There’s also more of a slowdown now.”
The president added that preliminary GDP numbers should be taken with a grain of salt.
Gold reacts with positive price gains and the dollar weakens
Gold traded as low as $1,709.10 overseas ahead of today’s report. Gold began gaining strength immediately after the report was released and strengthened as Powell spoke during the press conference. Gold futures, the most active August contract, traded as high as $1,739.60.
As of 4:43 PM EDT, August gold is currently at $1,733.10, a net gain of $15.40 or 0.90%. Meanwhile, the dollar was down 0.68% or 0.729 points today with the dollar index currently at 106.315.
Financial markets will react to the latest Q2 GDP figures tomorrow, this will be the next opportunity for traders to consider the latest data on the current strength of the economy. The Federal Reserve won’t hold another Open Market Committee meeting until November 2nd, meaning there will be additional PCE and CPI inflation reports to determine its future guidance.
This will allow market participants to factor in additional reports as they become available at current prices without the added pressure of upcoming Federal Reserve rate hikes.
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As always, I wish you good business,
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