Market Participants Brace for the Potential of More Hikes After Next Week

Federal Reserve’s Aggressive Monetary Policy: Is the End in Sight?

Members of the Federal Reserve tend to keep their future actions close to their chest revealing little insight as to any upcoming revisions to their aggressive monetary policy that has been in play since March 2022. While they have announced that they plan to implement two more quarter-percent rate hikes by the end of the year, many investors, economists, and analysts believe that next week’s rate hike will mark a conclusion to the aggressive campaign the Fed has undertaken to reduce inflationary pressures.

The CME’s FedWatch tool has conveyed an exceedingly high probability of a rate hike this month but is predicting a high probability that the next rate hike could be the last by the Federal Reserve this year. The probability that the Fed will raise rates next week has grown from 96.7% a week ago, to 99.2% yesterday. Today the CME’s probability indicator is now predicting a 99.8% probability that the Fed will raise rates next Wednesday.

At the same time if you look out to the three remaining FOMC meetings scheduled for this year there is a reasonable possibility that they will let rates stand between 5 ¼% and 5 ½% for the remainder of the year. The likelihood now stands at 84.9% that the Fed will pause and leave rates at their current levels in September, followed by a 70.8% probability that they will continue to maintain those levels in November, and a 65.3% probability that by the end of this year, the Federal Reserve’s benchmark terminal rate will stand pat between 5 ¼% and 5 ½%.

The question becomes will the written statement released after Wednesday’s meeting or comments made during the press conference by Chairman Powell allude to the potential that their aggressive rate hikes may be concluding? Members of the Federal Reserve especially the chairman is very guarded when it comes to monetary policies in recent history Powell’s statements might not express that possibility or even mention whether such discussions were on the table between Fed members during next week’s critical FOMC meeting.

It is this uncertainty that is once again moving gold to lower ground while at the same time strengthening the dollar. As of 6:20 PM EDT, gold futures basis the most active August contract is down $7.00 and fixed at $1963.90. Today’s settlement price is just above the 100-day simple moving average. But it must be noted that gold traded to an intraday low that broke below both gold’s 100 and 50-day moving averages.

The dollar continues to gain traction gaining 0.21% in trading taking the dollar index to 100.81. It is quite feasible that we see continued dollar strength and lower gold prices before Wednesday’s conclusion of this month’s FOMC meeting. While there will be a lot of conjecture and assumptions on possibilities that might occur after the September meeting it seems unlikely that it will be revealed in the federal reserve statement released at the conclusion nor found in the words of Chairman Jerome Powell when he holds his standard press conference one’ half-hour after the meeting concludes.

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Wishing you as always good trading,

Gary S. Wagner