The Fed recently held their last meeting for the year, and surprisingly, they are very optimistic about what 2021 may bring.
But of course, the path to get there isn’t so clear.
They held true to their promise to keep interest rates at or very close to 0% and made it clear that this would possibly not change until we see a complete resolution of the virus for things to return back to normal.
The FOMC also committed to continuing buying at least $80 billion a month in Treasuries and $40 billion a month in agency-backed securities “until substantial further progress has been made on maximum employment and price stability goals.”
Chairman Jerome Powell did say that he believes that things will get worse before they get better. He went on to state that the hardest part would be “getting through the next four, five, six months.”
And with the recent agreement of another stimulus package comes more money printing, which analysts believe will likely lead to higher inflation and an even weaker dollar.
The dollar index recently hit its lowest level since April 2018 and is currently sitting only 3% above a 6-year low.
We are all very well aware of how the markets reacted earlier this year to COVID, stimulus packages, and quantitative easing- the dollar plummeted, and gold soared.
Now, we may be headed for a replay of the same scenario.
“This move right now is all predicated on stimulus and Powell’s comments yesterday: it feels like gold’s back in favor,” said Bob Haberkorn, senior market strategist at RJO Futures.
“This time of the year, gold usually starts to move higher, and it’ll go up until early February. You throw in a seasonal trade there, coupled with a stimulus that’s coming and the Fed that’s been pretty supportive — it’s kind of turned into a perfect storm for gold bulls.”
StoneX, director of global macro strategy Vincent Deluar, said that the biggest risk of 2021 to us is inflation.
Deluar also commented, “Next year will be a year of recovery. We have all these stimuli: fiscal and monetary. We have the potential for very rapid recovery. Kind of what you would see after a major war.”
If the Federal Reserve believes that things will get worse before they can get better. Well, can you confidently say that you have a full-proof plan?