Takeaways from Wednesday’s Meeting

We see four key takeaways from Wednesday’s Federal Reserve meeting in Washington D.C.:

  1. The Fed did not raise short-term interest rates, as anticipated. The rate now remains defined as a range between 2.25% – 2.50%. The central bank is thus officially in “pause mode” on its 2015 – 2018 hiking campaign.
  2. The Fed indicated zero further rate hikes are due in 2019, and one single rate hike is likely in 2020. This is illustrated below by the Fed’s “dot plot”, which, as we can see, is now projecting that interest rates will top below 2.75% in 2021 (filled green circles):
  3. The rate beyond 2021 is now predicted to remain within the same range: under 2.75%. If the Fed sticks to this early projection, the 2020’s will, as suggested last week, see the lowest “new normal” short-term borrowing rate since immediately post-World War II (see chart, PMI Issue #161, page 3).
  4. The Fed said it would start slowing the shrinking of its balance sheet this May and halt the drawdown altogether at the end of September. After that, the Fed will likely hold the size of its portfolio “roughly constant for a time.”

Recall that the ballooning of the Fed’s balance sheet from under $1.0 trillion in 2008 to $4.5 trillion through 2014 was the result of ceaseless money-printing programs implemented by the central bank during the worldwide credit crisis (QE, TARP, TALF, etc.). While the Fed in 2008 originally claimed that its money-printing programs would be “sterilized” (i.e. money would be withdrawn before its effects could reverberate through the wider economy), we can now see that such promises were mere rhetoric and that the vast majority of the created funds are set to multiply through the wider fractional reserve lending system.

Post-Meeting Asset Comparison

Turning to view a cross-asset comparison in the three days following the Fed announcement:

  • Gold received a moderate bid, but then surrendered some of those gains by Friday.
  • Senior gold miners did positively leverage gains in gold and held most of those gains by the weekend, a positive sign.
  • US long-term bonds received the strongest bid of major world asset classes, as speculators emerged to buy bonds following the Fed’s promise to stop selling its own.
  • Ironically, the US dollar was higher in the three days following the meeting. For a Fed that all but promised to resume money printing within the next few years, this makes little sense. It is only should the market believe that the Fed’s printing will, in fact, spur legitimate economic growth and thus deficit reduction over the years ahead that the advance in the US currency makes any sense.
  • US stocks bounced initially but then finished in the red. It seems stock buyers first perceived the near-promises for future monetary stimulus as positive for corporate activity, but then did an about-face and realized that such desperate measures by the Fed must, in fact, reflect weakening fundamentals. For a Fed which is principally focused on supporting the corporate banking system, this underperformance by stocks following the announcement is a notable warning.
  • Broad commodities tracked stocks nearly in unison, lower.

Takeaway on the Federal Reserve Meeting

The Federal Reserve has moved from a policy of increasing interest rates to one of neutrality. All within a span of six months. This about-face stems from the 20% correction in US stocks seen from September through December 2018.

The Fed has reneged on its promises to sterilize its post-2008 money-printing. The central bank is likely to maintain the size of its balance sheet into perpetuity. Then will return to a policy of new printing at the first hint of insider-corporate distress going forward.

There is a divide between those who hold the power to issue new currency and those who must spend that currency. In a fiat system, those who receive new money from the Fed first get to spend it into an economy that has not already had its prices rise in compensation. The privileged first receivers truly do get “free purchasing power.”

The unprivileged pay through the hidden tax of inflation. As the new money bids higher the prices which must be paid for all goods and services.

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”

-Alan Greenspan, former chairman of the Federal Reserve, 1966.


Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. 

Christopher Aaron specializes in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy has helped his clients to identify both long-term market cycles and short-term opportunities for profit.

This article is a third-party analysis and does not necessarily match the views of Bullion Exchanges. Do not consider Bullion Exchanges as financial advice in any way.


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