People say that speech is silver, silence is golden. Well, not always. The recent FOMC monetary policy statement is the best example. Lets’ read out today’s article and find out why.
Nothing Changes in November
On Thursday, the FOMC published the monetary policy statement from its latest meeting that took place on November 7-8. In line with the expectations, the US central bank kept the federal funds rate unchanged at the target range of 2 to 2.25 percent:
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent.
OK, so the Fed held interest rates steady. But did the US central bank signal any shifts in its course? Not really. The statement was barely modified relatively to September. There were only two material changes. The first one concerned the growth of business investment, which had moderated from its rapid pace earlier this year (in September, the statement said that the growth had grown strongly). Of course, gold should welcome the slowdown in the growth of business investment, but that moderation is too early to panic and buy gold.
The second change was personal: Mary C. Daly is a new San Francisco Fed President (the former was John Williams, but he shifted to run the New York Fed) and she voted for the first time in the FOMC. We do not know whether she likes gold, but gold should like her. Daly is seen as dove more concerned about the labor market than inflation.
Is the November Statement Irrelevant for Gold?
Does it mean, thus, that the statement is irrelevant for the economy and gold? Well, not necessarily. You see, sometimes silence speaks louder than words. In other words, at times, what the Fed officials did not say might be more important to what they actually said. What we mean by that is the fact that the US central bank made no comment on the recent stock market turmoil (please note that it also appears to be unwavering in the face of criticism from Trump). Not a single word. And it still sees risks to the economic outlook as roughly balanced. Given the rise in the stock market volatility since September FOMC meeting (see the chart below), lack of any mention is hawkish (but this is what we expected: the stock market turmoil will be temporary without long-term repercussions). It turns out that silence is not always golden.
