Gold prices are currently hovering near $2,000 an ounce after minutes from the Federal Reserve's November meeting revealed policymakers expressed no sense of urgency to raise interest rates again for the second consecutive month running.
Minutes from the Federal Open Market Committee’s latest meeting, released on Tuesday confirmed that all officials are still committed to proceeding “carefully” on future rate decisions, as they debate whether they have squeezed the economy sufficiently to get inflation back down towards their 2% target.
The November meeting marked the second-consecutive gathering at which the FOMC opted against raising its benchmark interest rate and instead kept the federal funds rate unchanged at a 22-year high within the range of 5.25% to 5.50%.
Following a recent string of cooler than expected employment and inflation readings – the markets focus and sentiment has rapidly shifted towards how quickly the Fed will cut its benchmark interest rate next year. Earlier this month, Powell emphasised that the FOMC was “not thinking about rate cuts right now at all”.
However, traders are not convinced and there is a growing consensus that is already pricing in bigger-than-expected rate cuts in 2024.
According to UBS, the Fed will start cutting rates as soon as March, on the expectation that the U.S economy will slide into recession by the second quarter. This in turn will prompt the central bank to cut rates by 275 basis points next year, with the terminal rate plunging to 1.25% by early 2025.
Morgan Stanley also anticipates deeper cuts starting in June 2024 and then again in September and every meeting from the fourth quarter onward. The Wall Street bank predicts rate cuts in 25 basis point increments, according to their 2024 outlook report.
Meanwhile, Goldman Sachs sees the first 25 basis point rate cut in the fourth quarter of 2024, followed by one cut per quarter through mid-2026.
Will the Fed cut rates or will they remain committed to their “higher for longer” mantra?
Only time will tell, however if history has taught us anything, then the time to take action is not at the time of the inevitable event, but before the inevitable occurs. JP Morgan said it best in a recent note to their clients: “Now is the optimal time to prepare your portfolio – ready to capitalize on the markets next big move”.
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