The Markets Are Beginning To Look Beyond These Rate Hikes

The dollar market is acting much different than the the gold market rather than rising the dollar has been falling. Normally you get some strength of the US Dollar when the probability of an interest rate hike rises because after all higher rates everybody thinks that's bullish for the dollar and so as the probability of a rate hike increases so too does the value of the dollar but that didn't happen this time in fact the dollar closed the day at about a six-month low in the dollar index.

I think what's happening is the markets are beginning to look beyond these rate hikes to see the next rate cut understanding that the Fed is not going to come close to delivering the type of tightening that it had been indicating was coming that we are not going to normalize interest rates.

Federal Reserve: Raising Rates Into A Recession

It's quite possible that the Federal Reserve does raise interest rates in June even if it ends up that it turns out in hindsight that they raised rates in a recession. (SPDR S&P 500 Index ETF (SPY), SPDR Gold Trust ETF (GLD))

Gold Will Rally Before The Fed Raises Rates

I think the gold price is going to rise well before the Fed gets around to raising rates in June if in fact they raise rates. (SPDR Gold Trust ETF (GLD), Gold Futures, Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ))

Why Is The Fed Willing To Keep Raising Rates?

One of the reasons this might be the case is because the Federal Reserve is more concerned about having some ammunition to fight the next recession rather than simply postponing the onset, meaning that they want to get interest rates further above zero before the recession officially begins so that once it's here they have more room to cut interest rates.

But also I think another reason that the Fed has been more willing to raise interest rates has to do with the action in the US stock market. I thought that the Federal Reserve would be reluctant to raise interest rates for fear of how the higher rates might impact the stock market but it seems like the stock market has found another prop and is no longer simply relying on cheap money. It's now also relying on hope and optimism surrounding the election of Donald Trump and the idea that somehow he is going to make America great again which includes making the stock market great again with deregulation and tax cuts and all sorts of economic stimulus.

So I think because of this the Fed may feel that it doesn't have to provide as much support because the stock market is rallying in the face of these rate hikes.

The Fed Will Raise Rates Again in June

Following Friday's slightly better than expected non-farm payroll report the probability of a June interest rate hike is now near one hundred percent. The markets are now certain that a quarter point hike is coming in June and in fact if the Federal Reserve does raise interest rates by a quarter point that will bring the floor of the official rate finally up to 1 percent. (SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 Index ETF (SPY), Nasdaq 100 Index ETF (QQQ), iShares Russell 2000 Index ETF (IWM))

Currencies: U.S. Dollar Index May Drop To 60

The U.S. Dollar can fall rather substantially from here. The last time the Dollar Index fell, it bottomed out around 70. So, I think this time it might fall as low as 60 before anybody really gets nervous.