The June FOMC meeting is now over and the Fed released its policy statement at 2 PM this afternoon. Interest rates were left unchanged, and the Fed's rhetoric was typically ambiguous, giving us a "mixed bag" of signals, although the overall tone was dovish. It seems that interest rates will not not rise any time soon, and the question now is, how soon will there be a rate cut and how many will there be?
As usual, the Fed emphasized that the economy is doing well (expanding), BUT, of course, there are some reasons for concern lately. The statement references "uncertainties" (trade wars?, currency wars?) over the last six weeks that could damper economic expansion. The Fed also appears to be pulling back from its recent "patient" stance and will be more proactive in its approach to interest rates:
"The FOMC will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion...”
Most analysts now see "acting appropriately" as an impending interest rate cut, significantly the first in over ten years. Wall Street pundits seem to be anticipating two rate cuts this year with the first happening next month, but that may not happen as Fed officials seem a bit divided on the idea of rate cutting. Only one FOMC member, St. Louis Fed President James Bullard, dissented 1 - 9 against holding rates steady this month in favor of a cut, and the "dot plot" data shows nine Fed officials penciling in no rate changes this year and eight indicating one or two rate cuts this year.
Not surprisingly, the broad stock market did not react definitively in any one direction to these mixed signals. The DOW fell into the 2pm time of the Fed's statement, shot up immediately after its release then oscillated up and down until the market's close at 4pm. None of our three major indices (DOW, S&P 500, NASDAQ) made a new all-time high. As usual, we will need to wait another day or two to see if the Fed's statement will have any serious impact on this market. Still on the sidelines.
The absence of a a rate cut did not seem to traumatize equity markets, but the dovish rhetoric from the Fed may have weakened the U.S. dollar. The U.S. Dollar Index dropped significantly today, and since it made an isolated high yesterday (at 97.76) in a reversal zone specifically for currencies (June 11 - 20), this could be a turning point for a significant correction. If true, that could be bullish for gold and silver. The precious metals did rally today, but we will stay on the sidelines until the cycle pattern is a little clearer in both metals.
Crude oil prices remained relatively unchanged today. Crude's reversal zone ends this coming Monday so unless prices fall steeply now, it may be that last Wednesday's low at $51 (July contract chart) was the start of a new medium-term cycle. If so, we should be looking for any short-term dip (that stays above $51) to buy soon. Still on the sidelines of crude.