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Completing the Capitulation: The Entirety of the FED Turns Dovish - Nathan McDonald (22/03/2019)

Completing the Capitulation: The Entirety of the FED Turns Dovish - Nathan McDonald (22/03/2019)
By Nathan McDonald 1 years ago 4074 Views No comments

March 22, 2019

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.

Enjoy reading this article? Interested in precious metals? Find out why we are “The Most Trusted Name in Precious Metals”. Learn more about Sprott Money.

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.You may copy, link to or quote from the above for your use only, provided that proper attribution to the source and author is given and you do not modify the content. Click Here to read our Article Syndication Policy.

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