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The Fed Had No Choice - Timing Is Everything


  • The move in 2019.
  • The Fed wanted to remain neutral on rates.
  • Coronavirus changes the game.
  • The market and administration were screaming at the central bank, and that will continue.
  • Lower rates will lead to a golden explosion - UGLD turbocharges results.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

In 2018, the US central bank went a bit too far when it hiked the short-term Fed Funds rate four times for a total of a full percentage point. The rate hikes came as the rote program of balance sheet normalization continued to push rates higher further out along the yield curve. In the final quarter, risk-off conditions gripped markets in a sign to the Fed that they became a bit too over enthusiastic hiking rates when the rest of the world did not join the tightening party.

With the trade war between the US and China escalating in 2018 and through 2019, and Brexit approaching, fear and uncertainty rose causing markets to hit lows during the final week of 2018, The Fed got the message and reversed course in 2019.

Central banks around the world became addicted to using their monetary toolboxes to stimulate economic conditions. Under the Trump Administration in the United States, tax and regulatory reforms injected fiscal stimulus into the economy, which led to GDP growth, falling unemployment, and rising corporate earnings. The US depends on the rest of the world for economic expansion, but few central banks followed the US lead. In 2019, the US central bank realized that it had pushed the envelope a bit too much.

Lower interest rates since the 2008 global financial crisis create the conditions for a bull market in gold. The yellow metal waited until the Fed moved back to a dovish stance before it broke out to the upside last June in the next leg of a move to the upside that began in the early years of this century. Recent events have put the Fed in a position where it had no choice but to push interest rates even lower. On Tuesday, March 3, the Fed cut the Fed Funds rate by

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This article was written by

Andrew Hecht profile picture

Andrew Hecht is a 35-year Wall Street veteran covering commodities and precious metals.

He runs the investing group The Hecht Commodity Report, one of the most comprehensive commodities services available. It covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis. The author is long gold

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (11)

Vooter profile picture
If there's one virus that the U.S. needs to eradicate, it's the Fed...
Correction “federally, even globally supported stock market”
I don’t think supporting stock markets is in the Feds mandate. If they are going to bow to the wishes of whoever is in office then they are now obsolete and ineffective. We may as well save tax payer monies and hire an intern to pull the levers. Lower rates hurt retirees who saved their whole lives in hopes of living off the interest of their savings when elderly. We now have a federally, even globally stock market. Is that truly a market? When people reach for yield and price discovery goes out the window?
racerkeith profile picture
@JustAFarmer Just like the IRS if we go to a flat 10% tax rate across the board.
The banking system protects the ultra wealthy by stealing from everyone else. The masses are lulled into the opiod of cheap money or debt, not realising that it sells their future to those issuing it.
racerkeith profile picture
@gszd that is why I save for major purchases, buy on the card with best rebate, payoff card every month. By September this year, my wife and I will be debt free.
Weird how stocks can go up 20% and that's just normal. But stocks dropping 10%, and FED needs to come in and help?
racerkeith profile picture
The Fed panicked
"The Fed panicked"

LOL! The rate cut was only 50 basis points. If anything, it was too small.
And these guys(fed) are suppose to be the professionals.
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