The Federal Reserve signal's ZERO is here to stay

Today the Federal Reserve convened this month’s FOMC meeting. The most important statement made by the Fed at the conclusion of this meeting was that the United States Federal Reserve does not plan to raise interest rates until 2022. Interest rates will stand where they currently are; at near zero.

The Fed also reiterated that the Central Bank will continue to buy Treasuries as well as mortgage-backed securities at the current pace. Since mid-March of this year the Federal Reserve has purchased over $2 trillion worth of Treasuries and mortgage-backed securities. The central bank has stated that they will buy a minimum of $20 billion worth of treasuries this week, and up to $22.5 billion in mortgage bonds to continue to stimulate the economy.

Chairman Jerome Powell was clear when he stated that the Federal Reserve is committed to using its full range of tools in order to support continued growth in the U.S. economy. They maintain their commitment and policy of promoting maximum employment, and price stability goals, which is in essence benchmarking inflation rate at approximately 2%.

The statement released today by the Federal Reserve said that, “The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

This statement along with the press conference held by Jerome Powell is the first economic updated forecast in the last six months. The Fed released their new economic projections and an updated “dot plot “today, which clearly showed that they plan to leave interest rates where they are.

The net effect of today’s statement and press conference was to take gold prices sharply higher. As of 4 PM EST gold futures basis the most active August contract is currently up $26 at $1747.90. This is a net gain of over 1.5%. The US dollar was weaker by approximately quarter percent. Lastly silver gained over 3% on the day, and after factoring in today’s $0.55 gain is currently at $18.34.

By Gary Wagner