The FOMC members will gather today for a two-day meeting. It will be the most important event this week, since Powell will chair the meeting for the first time. Gold investors want to get to know him better as the uncertainty makes them a bit nervous. What should we expect from the new Fed Chair?

First FOMC meeting under Powell as Chair

Do you remember your first bike ride? Or the first date – and kiss? People often fear doing something new. It’s normal. We are status quo creatures. We are afraid of changes. They are risky. Particularly in monetary policy. Indeed, we like technical innovations, but we prefer predictable and conservative banks, don’t we?

The personal changes in the top positions at central banks are especially hazardous. Indeed, do you remember what Draghi did during his first meeting as the President of the ECB? He cut interest rates, reversing Trichet’s monetary tightening. And do you remember the first decision of Kuroda as the Governor of the BoJ? He announced aggressive asset purchases under Qualitative and Quantitative Easing.

So it’s understandable that the financial markets are a bit nervous ahead of the FOMC meeting. Will Powell hike? What will he say? Will he reveal a hawkish bias? These are the questions investors are asking right now. Let’s try to answer to them.

Brace Yourselves, Hike is Coming

The Fed will hike. It’s almost certain. The market odds of such move are more than 94 percent. It implies that the lack of a hike would be significantly more disruptive than a hike at this state of market expectations. Powell will not risk upsetting the markets. As the move is practically fully priced in, gold prices shouldn’t fall on that. Actually, they may increase afterwards, as investors often sell the rumor and buy the fact. What really matters are the new Fed forecasts and Powell’s forward guidance. Will he signal that four rate hikes are likely this year?

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