by Craig Hemke, Sprott Money:
Gold and Silver Prices Set for Volatility Amid FOMC Meeting
This week brings the long-awaited September FOMC meeting and, with it, the first cut of the fed funds rate as the new rate cutting cycle begins. But will that first cut be 25 or 50 basis points?
TRUTH LIVES on at https://sgtreport.tv/
Fed Rate Cuts and Their Impact on Precious Metals
The September FOMC meeting begins on Tuesday and ends on Wednesday with the statement and Summary of Economic Projections (SEP) at 2 p.m. ET and Jerry Powell’s press conference at 2:30 ET. These events will move the markets and, as such, must be watched closely by precious metal investors.
What is expected to happen? Let’s take those three items and break them down one by one.
First, the headlines at 2 p.m. There is no remaining doubt that a fed funds rate cut is pending, but the question is: how much will rates be cut? As I type this on Monday morning, the fed funds futures market is pricing in a 63% likelihood of a 50 basis point (0.50%) cut.
Personally, I believe that Powell is too pragmatic to move that quickly and he will urge the FOMC to get the new cycle rolling with just a 25 basis point cut. On the flip side, some politicians are out today with a letter urging Powell to cut by a whopping 75 basis points.
So, we’ve got Powell The Pragmatic thinking 25 but some politicians urging 75. Maybe, in the end, the FOMC splits the difference and does indeed end up cutting 50? Even if they do, the rate range will remain elevated at 4.75-5.00% with an “effective rate” of 4.90%. That’s still a whopping 1.35% higher than the current yield on the U.S. two-year note! As you can see, the treasury bond market is already pricing in much steeper cuts to come.
