Daily Gold & Silver Market Report – 12/15/2016

Cassie Bastien

12/15/2016 9:56:00 AM

THE FED HAS MADE ITS MOVE

Paul Davidson with USA Today reported, “The Federal Reserve raised its key interest rate Wednesday for the first time in 2016 by a quarter percentage point, and projected slightly faster increases the next few years amid the prospect of a massive government stimulus.” After a two-day meeting, Fed policymakers unanimously agreed to raise the benchmark federal funds rate (the rate banks charge each other for overnight loans) from 0.4 percent to 0.6 percent. This highly anticipated hike is the second since 2006 “despite an unemployment rate that has tumbled from 10 percent in 2009 to a near-normal 4.6 percent,” Davidson said. Since the recession ended seven years ago, the Fed nursed along a sluggish economy with near-zero rates. Wednesday’s move is expected to shake up the economy, causing rates to increase for almost everything, including auto loans, mortgages, corporate bonds and even bank savings’ rates. Federal Reserve Chair Janet Yellen said at the press conference the “decision to raise rates should certainly be understood as reflecting the confidence we have in the progress the economy has made and our judgment that will continue.” In addition, Fed policymakers forecast three more rate increases in the coming year. Davidson reports, “They predict the fed funds rate will be 1.4 percent at the end of 2017, 2.1 percent at the end of 2018 and 2.9 percent at the end of 2019, up from forecasts of 1.1 percent, 1.9 percent and 2.6 percent, respectively, in September. Its long-run rate is expected to be 3 percent, up slightly from 2.9 percent previously.” Yellen told reporters Wednesday that President-elect Donald Trump's economic blueprint "may have been a factor" for some policymakers in their decision. With Trump making promises to cut taxes, beef up defense and spend up to $1 trillion on infrastructure, some economists believe the Fed will speed up its rate-hike timetable. Economists also say Trump's threats to impose import tariffs could ignite trade wars. Increased rates as announced yesterday could restrain consumer and business borrowing, inhibiting economic activity. Davidson reports that “Fed policymakers on Wednesday slightly upgraded their forecasts for the economy, and now expect growth of 1.9 percent this year and 2.1 percent in 2017, up from 1.8 percent and 2 percent, respectively. And with the unemployment rate at 4.6 percent, it lowered its estimate for the rate to 4.5 percent at the end of 2017 from 4.6 percent in September.” The Fed is looking toward a brighter future, saying “economic activity has been expanding at a moderate pace since midyear,” adding that “job gains have been solid in recent months” and household spending has risen moderately. Davidson said that for most of 2016 “the unemployment rate hovered near 5 percent, partly because discouraged workers on the sidelines streamed back into an improving labor market.” Yellen said this increasing labor force gave the Fed flexibility to keep rates lower for longer to encourage such growth. However, Davidson notes, “the labor force has shrunk the past two months, and the falling unemployment rate raises the prospect of faster pay growth,” as average earnings gains hit a seven-year high in October.

WHAT DOES THIS RATE HIKE MEAN FOR YOU?

The Federal Reserve raised interest rates in time for the new year and the new presidential administration. As NerdWallet and LA Times report, “Now that the Fed has made its 0.25 percent hike, the next step for consumers depends on which side of the saving-borrowing divide they stand.” Common questions coming from this major change consist of things like ‘What impact will the rate hike have on my retirement savings?’, ‘Should I adjust my investing strategy?’ or ‘What does the rate hike mean for my savings account?’ For starters, NerdWallet says forecasting the effect the rate increase will have on any individual investor’s depends a lot on their near-term plans for their money and what their investment portfolio consists of. They reported, “When a rate increase is expected, the effect on the overall market is usually baked into stock prices already. … Intermittent volatility in exchange for higher potential returns on your long-term savings is par for the course.” As far as savings accounts, NerdWallet explains rates may go up but will not jump overnight nor be significant, because although banks raised loan rates, savings rates were left unchanged.

At 10:56 A.M. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,129.40 Down $35.10
• Silver, $16.11 Down $1.13
• Platinum, $906.60 Down $35.20
• Palladium, $712.40 Down $21.10

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