We’re certainly seeing plenty of different approaches from central banks as they wrap up their tightening cycles, with the Bank of England today surprising with a hold while not adopting a particularly hawkish tone alongside it.
That said, more important than the tone is just how close the vote was, with five policymakers – including Governor Bailey – voting to hold and four others backing a hike. That arguably puts this in into hawkish hold territory but what is interesting is the wide range of views within the committee that comes across in the statement.
I expect we’ll see a similarly tight vote at the next meeting, the outcome of which will be even more heavily driven by the data as there’s clearly no overriding consensus on the committee.
Two things that particularly stood out in the statement were the view that inflation has fallen a lot and is expected to continue to do so, and the choice of words with respect to how long rates will stay high – “sufficiently restrictive for sufficiently long”. While you could argue it’s just a bit cryptic, it’s far from the message that rates will stay higher for longer that we’re getting from the Fed, ECB, and others. I suspect a number of policymakers see the potential for rate cuts earlier in 2024 if data performs as expected.
An attempted hawkish hold from the SNB but markets not buying it
The SNB refrained from raising interest rates earlier today, instead signaling that sufficient tightening has taken place in order to get inflation back to below 2% over the forecast horizon. While inflation is already well below 2%, there was an expectation that the central bank would hike again and in effect mirror the actions of the ECB before calling it a day.
The decision did see the Swiss franc weaken against the euro, as you’d expect, despite Chair Jordan’s attempts to strike a hawkish tone in warning rates could still rise again if they deemed it necessary. That seems very unlikely now though, instead, it will soon become a question of when we can expect rate cuts rather than hikes.
Profit-taking continues in Oil after the Fed’s hawkish hold
Oil prices are trending lower for a third day, with the Fed’s hawkish hold on Wednesday seemingly compounding fears that appeared to build in the run-up to the decision. The central bank was always likely to position itself as hawkish but perhaps the dot plot was more so than many anticipated.
And ultimately, while the US economy showing resilience may be viewed as a positive in the short term as it supports demand, if that then prompts the Fed to tighten further and hold rates higher for longer, it risks tipping the economy over the edge and into recession. And it seems it’s those fears that are now weighing on crude prices after such a powerful rally over the last four weeks. ​
I’m not convinced that will be enough to trigger a significant reversal in crude prices, but rather provide an excuse for some profit-taking after such a huge rally. The fact remains that the market is tight and running a large deficit. Until that changes, prices could remain elevated, and talk of $100 Brent won’t go away.
Gold pares gains but are traders convinced by Fed forecasts?
The Fed’s hawkish hold didn’t prove too popular with gold bulls either despite some apparent optimism ahead of the release. Gold rallied toward $1,950 in the run-up to the decision, in line with the highs from earlier this month, before giving all of the day’s pre-release gains back and ending it in the red.
It’s trading a little lower once more and, depending on how seriously traders are taking the Fed’s dot plot, could be at risk of testing last week’s lows around $1,900. Ultimately, until we get more data, that’s what it all comes down to. Will traders accept the forecasts or do they view them as a hawkish move to manage expectations, the latter of which could continue to support the yellow metal until we have more data.
Bitcoin edges lower but there are bigger things to focus on
Bitcoin is trending a little lower, roughly aligned with how other risk assets have performed in the aftermath of the Fed decision. Broadly speaking though not a lot has changed for bitcoin recently. There’s been some bursts of volatility but price-wise, it’s just fluctuating primarily between $25,000 and $27,500. Perhaps it’s simply a case of traders awaiting more ETF news, or other catalysts within the space, as the post-Fed move wasn’t particularly significant.
