Market Overview: Markets had been largely in a holding pattern for the first part of the day today, as investors anxiously awaited the FOMC meeting. As expected, the central bank hiked interest rates by a quarter point. Investors will now turn their attention to the central bank’s assessment on economic conditions and any discussion of the bank’s plans regarding additional rate hikes next year.
Silver and gold did not have a very significant reaction to the rate hike, but did lose gains they had managed to hold prior to the announcement.
Key Data Points: This afternoon’s FOMC meeting announcement and press conference are the most important economic releases for the week. Although the 25 basis point rate increase was likely already fully discounted by markets, investors will now focus on the rate hike picture for next year. The Fed is sounding more hawkish this time around, and the central bank’s dot-plot now shows three rate hikes for 2017 rather than just two.
In other news, PPI today showed solid gains as prices rose by .4 percent, well above consensus estimates of .2 percent.
MBA Mortgage Applications showed another decline in both new mortgage applications as well as refinancing activity as rising rates appear to be taking a toll.
The latest reading on retail sales showed a smaller rise than expected. Retails sales rose by .1 percent while consensus estimates were looking for a rise of .4 percent
Outside Markets: Markets are still sorting themselves out following the FOMC announcement, with stocks moving moderately lower. Bonds and notes saw some selling after the rate hike, as yields are on the rise again.
The dollar index is stronger after the announcement, and a more hawkish-sounding Fed may keep a floor under the greenback.
The Big Picture: Today’s interest rate hike was not unexpected, although investors will now have to ponder a potentially faster pace of further interest rate hikes. Although risk appetite has remained elevated since the Presidential election, the notion of rates rising faster could potentially put a dent into sentiment. The gold and silver markets could, however, now be a step closer to finding a bottom as more clarity may now be seen regarding the potential pace of interest rate hikes next year. That being said, however, the gold and silver markets do have a number of hurdles potentially standing in the way of higher prices. The precious metals still appear to be lacking any fresh bullish catalyst to fuel a sustainable rally, although gold and silver could get a boost if stocks begin to weaken or if the dollar starts to run out of steam.