LAWRIE WILLIAMS: U.S. Fed ambivalent as Trump calls for 1% cut. Gold and silver consolidating.
If analysts were looking for some guidance as to likely future U.S. Fed rate cutting from the now released minutes from the end-July FOMC meeting, none was forthcoming. Will Fed chair Powell’s Jackson Hole speech tomorrow deliver any more clarity? We don’t think so if he plays the standard political game. The White House is calling for even bigger interest rate cuts and one suspects that Powell won’t want to antagonise the Presidency further by ruling out any additional cuts at this stage.
President Trump’s call for a 100 basis point cut in a tweet earlier this week could well be a standard business negotiating tactic in suggesting a higher cut than he might likely expect the Fed to deliver. After all his earlier suggestion that a 50 basis point cut would help the U.S. economy was followed by a 25 point cut by the Fed, so by upping the ante he may perhaps be, in reality, looking for a 50 point cut next time around – which could be at the mid-September FOMC meeting. The Fed will, no doubt, be keen to retain an aura of independence from the Administration and meeting the President halfway might seem to preserve this, with a 50 basis point cut actually what the President might realistically hope to achieve by his continuing rate cut pressure.
Meanwhile, of course, there will be plenty of data out before the FOMC meeting, due on September 17th and 18th which could be justification for the Fed jumping one way or the other. Should this data show serious pending weakness in U.S. economic data then a 50 point basis cut could well find favour. We anticipate, however, that most of the forthcoming data will be somewhat ambivalent in this respect and although the Fed is likely to cut rates further, it may only be by 25 basis points again.
At least that is what the markets expect. According to kitco.com, market analysts are currently predicting a 98.1% likelihood of a 25 point cut at the next FOMC meeting and only a 1.9% chance of there being no cut at all. A day earlier they also saw a 1.9% chance of a 50 point cut, but this since seems to have fallen away to zero chance. The odds are likely to fluctuate further – up or down – with each ensuing release of U.S. economic data.
Gold and silver prices are also likely to fluctuate along with U.S. economic data announcements, but this will largely be dependent on trying to predict what the Fed will do at its next FOMC meeting. Currently the gold price seems to be consolidating at close to, or just below $1,500 and silver around $17. The further the rate cut odds swing towards a bigger figure the stronger precious metals prices are likely to be. President Trump, as is his wont, will probably re-iterate his call for a 1% rate cut and that may well improve the odds for a 50 basis points drop. This would be silver and gold positive as would be any flare-up in global flashpoints or a further deterioration in U.S./China trade negotiations.