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« US inflation back to undershooting 2 per cent ahead of FOMC meeting | Main | Who Really Controls The Gold Price? (The Answer Is Quite Surprising) »

No More Rate Hikes This Year

The odds of additional interest-rate increases by the end of the year have been falling significantly.  In fact, there is currently a 24% chance that there will be NO MORE rate hikes this year, according to Bloomberg (which uses Fed Funds futures to determine the probabilities).  On April 7th, the odds of no additional hikes this year were only around 10%.  The increased odds of the Fed staying on the sidelines through year-end reflect the following:

  • There continues to be a wide gap between the “soft” economic data, which is generally based on surveys, and the “hard” economic data, which reflects real economic activity.  Recent weak economic data include:
  • Job growth in March was well below expectations (although the unemployment rate fell to a low 4.5%);
  • Retail sales in March were weak (reflecting, in part, a delay in tax refunds);
  • Wage growth in March was positive, but remains lackluster after adjusting for inflation;
  • Housing starts were well below expectations;
  • Manufacturing production contracted in March;
  • Auto sales were disappointing and appear to have peaked for this cycle; and
  • The lackluster economic indicators we have noted are causing economists to lower their 1Q GDP growth forecasts to as low as +0.5% (Federal Reserve Bank of Atlanta)
  • The most recent readings for both the Consumer Price Index (CPI) and the Producer Price Index (PPI) suggest that inflation is not accelerating;

read more....

No rate hikes in the near future should see the dollar weaken and gold rally.....

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