The Federal Reserve on Wednesday removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature, which pushed equities and gold lower.
“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its two percent objective over the medium term,” the Federal Open Market Committee report said.
The members of the Fed’s policy board are locked in what’s become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008. The current market consensus is that the first hike will happen in the fourth quarter.
“They took out the calendar references, so now [their policy] is entirely data dependent. That means that every meeting from here on is live. But this is a pretty downbeat assessment of the economy, so I would say that June is off the table,” CNBC chief economist Steve Liesman said.
The FOMC said that economic growth slowed during the winter months, while the pace of job growth “moderated”, however, it placed some of the blame on “transitory factors” such as bad weather.
Gold and equities slipped on the Fed’s assertion that the economic slowdown might be due to temporary factors that could dissipate and even reverse later in the year. This in-turn would clear the path for a interest rate increase, several analysts noted.
In the markets, gold futures for June delivery on the Comex division of the New York Mercantile Exchange fell to $1,203.7 per ounce, which is $4.80 lower than the pre-FOMC level.
The most-actively traded Comex copper futures contract fell by about one cent following the statement to $2.792 per pound, while light sweet crude (WTI) futures were at $58.75 per barrel, up $1.69.
In earlier data, US advance GDP rose 0.2 percent, missing the forecast of 1.0 percent and down from the previous quarter’s downwardly revised 2.2 percent, while the advance GDP price index declined 0.1 percent – analysts had projected 0.5-percent increase.
“Holy Weak Growth, Batman,” Sterne, Agee & Leach said in a note. “After back-to-back quarters of above trend growth in the second and third quarters of last year, activity has slowed in nearly every category, pushing GDP down to 2.2 percent at the end of last year and further still to just two-tenths of a percentage point across the first three months of 2015, resulting in significantly lower growth than expected.”
Some analysts have been quick to dismiss the weakness as transitory, resulting from one-off factors such as cold winter weather or port disruptions, but Sterne Agee believes there more at play.
“The widespread malaise across nearly every sector of the economy, not to mention the continued weakness in March and April data after the temporary issues were resolved, suggests fundamental weakness as opposed to Mother Nature is at the root cause of the economic decline,” the analysts said.
In the wider-markets, the dollar was 1.13 percent weaker at 1.1106 against the euro, while the Dow Jones industrial average and S&P were down 0.4 percent and 0.5 percent respectively.
(Editing by Tom Jennemann)
The post Gold, equities down on FOMC statement appeared first on The Bullion Desk.
No comments:
Post a Comment