Considering some of the latest FED narratives traders should not really expect the rate to pause shortly. The rate hike in May is unlikely to be the last one this year.
Recent market volatility resulted in lower bullish market sentiments for gold. It caused a price break taking precious metal futures $20 lower beyond $2,000. However, after NY traders observed a sudden and powerful gold price decline to $1980.90, the asset managed to recover just as fast as it broke after being sold off.
The market reacted to the FED's official statements regarding the need to take interest rates higher. Such narratives alarm traders who still wait for the rate pause following the anticipated ¼% hike taking place in May. Some of the Federal Reserve’s officials have been quite vocal saying the need for another interest rate increase is imminent.
Some of the FED governors said the rate increase is necessary because of high inflation despite the growing employment and economic output. In simpler words, traders should give up their hopes for falling rates soon. It also means that the government will continue tight monetary policy, which can last much longer than most market participants expect.
The key problem here is that central bankers did not manage to make any good in getting inflation back to the 2% target. Even aggressive rate increases appeared to have little sense. Nevertheless, the FED is likely to move it even higher.
The Federal Reserve has nothing to do but keep tightening the monetary policy. The worst thing is that no one knows how much further. It will depend on multiple factors such as inflation, real economic health, credit conditions, and so on.
In the end, traders are left with the FED’s narrative that differs from what many of them anticipated. It means the rate hike pause is postponed, at least not canceled yet.
May the trading luck be with you!
