On Wednesday, February 20 the Federal Open Market Committee released the minutes from the latest meeting. The minutes highlighted that the central bank would continue to exercise patience as they pause and refrain from short-term increased in the Fed Funds rate.
Perhaps the most significant aspect of the release was that all of the members of the FOMC agreed that the central bank is considering ending balance sheet reduction later this year.
The fourth quarter of 2018 was a time where risks that could impede economic growth increased, and the central bank is formulating a plan and target for an equilibrium level when it comes to their balance sheet. It now appears that the Fed Funds rate is likely to be lower than the market had feared, and the balance sheet reduction will bring the total value of assets to a level that will be higher than the market had anticipated. The Fed minutes confirmed a departure from last year’s hawkish approach to monetary policy.
Although the minutes were dovish, stocks edged lower after the release on Wednesday at first but recovered with marginal gains in the S&P 500, DJIA, and the NASDAQ.
Gold had appreciated to just under the $1350 level early in the day on Wednesday, and silver ran out of upside steam at only one-half cent below the January 31 peak at $16.20 per ounce. Both precious metals moved lower in the wake of the Fed minutes. The dollar index did not move much on the day.
Perhaps the most significant move came in the copper market which broke its technical resistance level on the upside.
As the weekly chart highlights, the red metal posted gains over the past seven consecutive weeks and moved above the early October high at $2.8665 per pound this week. Copper settled at $2.92 on Wednesday which is the highest price since early July.
Copper is more than just an industrial metal as it often acts as a barometer for sentiment about the health of the global economy. The nonferrous metal has given a thumbs up for the potential of a trade deal between the US and China over the coming weeks.
The Fed and trade dispute were two of the leading factors that drove markets lower from October through December. The Fed minutes on Wednesday that outline the discussions of the voting members of the committee that steers monetary policy for the world’s leading central bank revealed their sensitivity to the market action during the fourth quarter. The takeaway from the Fed minutes was a kinder and gentler central bank when it comes to a slower path for tightening credit. Over the coming sessions as the markets continue to digest the latest message from the Fed, it is likely that we will continue to see gains in stocks, bonds, and interest rate sensitive commodities prices. However, the trade negotiations, US debt ceiling, and Brexit are issues that could cause volatility to increase in the blink of an eye.