After several days of wild trading contrasted with solid gold prices, markets focused on reset to the Federal Reserve meeting this Wednesday. But can the US central bank provide any relief in light of all the hawkish expectations? Economists interpret the market in the light of Fed expectations and share their gold forecasts. we too cryptocoin.com We have prepared it for our readers.
Win Thin: We expect President Powell to send a very clear signal
The Fed is expected to keep monetary policy on hold at its January meeting. This time, however, it’s all about what to expect in March. Many market watchers suggest that the Fed will not back down from its hawkish promises to complete the rate cut sooner than expected, initiate at least three rate hikes this year, and look at the balance sheet flow after tapering. TD Securities strategists evaluate:
The focus is on this week’s FOMC meeting, with a growing group of attendees hoping the Fed will manage to provide a soothing tone for markets. Given that Chairman Jerome Powell’s primary goal is to prevent inflation expectations from stabilizing, it is unlikely that the Fed will reverse from its plan to start a rate hike in March and begin quantitative tightening soon after.
Forty years of high inflation and rising wage pressures are the reason for a much more aggressive Federal Reserve in 2022. Win Thin, head of BBH’s Global Currency Strategy, says this is not about to change. “A hawkish stance is widely expected as the Fed prepares the market to rise at its next meeting on March 15-16,” Win Thin said, then adding that three more hikes every three quarters this year will be fully priced.
We expect President Powell to send a very clear signal. Markets will be eager to see any clues as to when the Fed will allow balance sheet flow. We thought this would be a 2023 story, but given recent official comments and the expedited timeline, we believe the runoff will kick off in Q3.
The Fed’s number one priority remains to contain inflation as the US economy approaches full employment. Win Thin states that the Fed cannot target the stock market, too, and underlines the following:
Yes, financial stability is the Fed’s implicit third goal, but not every correction or bear market results in financial instability. Especially as the US economy is on its way out of the pandemic.
The ‘ready to take off’ signal shouldn’t surprise anyone, according to TD Securities
Markets have been preparing for a March rate hike for a while. However, an increase of 50 basis points in March and an earlier-than-expected balance sheet flow may be too unprepared. TD Securities strategists interpret this situation as follows:
A possible increase in interest rate in March was well communicated, so the ‘get ready to take off’ signal should come as no surprise to anyone. More important for the markets will be any guidance on the possible pace of tightening in the coming year/years through QT (quantitative tightening) and the interest rate. Unfortunately, we do not expect definitive signals and the result may be mixed messages.
However, “We hardly see a chance for Fed officials to start the tightening cycle with such a large increase,” said TD Securities, adding that a 50 basis point increase in March is highly unlikely. Reminding that the last 50 basis points increase in the interest rate was at the end of the 1999-2000 tightening cycle of which Alan Greenspan was chairman, strategists predict that Fed officials will increase the frequency and QT scale of interest rate hikes before resorting to rate hikes above 25 basis points.
Meanwhile, the crypto market has been closely following the sale of tech-heavy stocks last week. At the time of writing, Bitcoin managed to recover above $37,000 and was trading sideways on the day. And Ethereum has rallied slightly on the day at $2,506. Edward Moya, senior market analyst at OANDA, comments:
This is a pivotal moment for Bitcoin and if the Wall Street panic sells back, the $30,000 level may not be very supportive. It should enter a period of calm as financial markets await the Fed, but that may not be the case given January’s volatility.
Lukman Otunuga: A hawkish Fed may reduce appetite for gold
On the other hand, gold entered another stellar session by climbing above the key $1,850 resistance level. “There was a general ‘risk aversion’ trading mentality in the market earlier this week and this is increasing interest in safe-haven metals,” said Jim Wyckoff, senior analyst at Kitco.
“Golden started the week on a solid note as geopolitical tensions accelerated the flight to safety,” said Lukman Otunuga, senior research analyst at FXTM, saying that this week will be a big one for gold, whose short-term outlook is likely to be affected by the Fed meeting.
A hawkish Fed signaling multiple rate hikes could dampen appetite for gold, causing prices to drop to $1,831 and $1,810. If the Fed deviates from the scenario and surprises the markets and is hesitant about future rate hikes, it could push the gold price towards $1,870.
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