Gold futures basis is the most active December 2022 contract as of 5:05PM ET, currently flat at $1,662.50 after accounting for today’s net gain of $25.70 or 1.57%. The strong gains were based on differences among voting Fed members as they debated whether or not to reduce the size of the rate hike at the December Federal Open Market Committee meeting. There is certainly no unanimous consensus on future actions regarding the pace and scale at which the Federal Reserve continues to raise the federal funds rate.
According to CME’s FedWatch tool, there is a 96.5% chance that the Federal Reserve will raise its benchmark interest rate by another 75 basis points in November. FedWatch derives its probabilities based on the Fed Funds futures prices and has performed excellently in the previous predictions.
There was a recent change in the potential size of a December rate hike and it has changed significantly over the past week. This indicator currently predicts a 51.9% probability that the Fed benchmark rate will be between 425 and 450 basis points, yesterday the probability was only 24.2%.
Meanwhile, FedWatch believes that there is a 46.3% chance that the Fed funds rate will be between 450 and 475 basis points by the end of 2022. This differs significantly from yesterday’s forecast which indicated a probability of 75.4%. What has caused the dramatic shift in federal funds futures prices over the past 24 hours is fresh speculation among Federal Reserve officials about whether or not to start reducing the size of the December rate hikes in addition to increases next year.
The Wall Street Journal first reported this morning, “Fed officials are heading for another 0.75 percentage point rate hike at their November 1 and 2 meeting and will likely then discuss whether and how plans to approve a smaller increase will be indicated. That. In December.”
The article also addresses the fact that some officials are beginning to point out that they “want to slow the pace of increases soon and stop raising interest rates early next year to see how their moves this year are slowing the economy.” The concern among the Fed’s most pessimistic officials is their desire to reduce the risk of causing an unnecessary sharp contraction in the economy. Those who oppose any changes to their current hawkish pace of interest rate hikes believe it is too early for these discussions as inflation remains entrenched and persistent.
“We will have a very thoughtful discussion about the pace of tightening at our next meeting,” Federal Reserve Governor Christopher Waller said earlier this month. Which makes it an interesting fact that today’s Wall Street Journal article had a lot of weight when it was known that a discussion was taking place about the pace of monetary tightening.
Throughout this week, analysts, including myself, have focused on recent statements by various Fed chiefs indicating a desire to raise the benchmark interest rate to between 450 and 475 basis points before making any decision. This can only happen if they raise rates by 75 basis points at the next FOMC meeting.
That’s why today’s Wall Street Journal article “Fed Set 0.75 Point Rate Raise and Debate Over Future Rally” had such a huge impact. One possibility is that the Wall Street Journal also reported that “two Fed officials have started making a case for caution in raising interest rates recently.”
Whatever the reason for publishing this article today, it is an indisputable fact that this article has been instrumental in raising gold and silver prices significantly. Also, it had a strong impact on US stocks as the Dow Jones rose 748.97 points or 2.47%, the S&P 500 rose 2.28%, and the Nasdaq Composite rose 2.89%.
Since raising the Fed funds rate requires a vote ruling the majority of voting members in favor of the increase, market participants will focus intently on the FOMC statement from November as well as Chairman Powell’s remarks at the post-conclusion press conference from the November meeting.
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Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.
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