Fed likely to cut rate at July FOMC meeting

Gross Domestic Product (GDP) grew at 2.1% in the second quarter according to the Bureau of Economic Analysis’ (BEA) “advanced” estimate.  The first quarter saw an increase of 3.1%  Both estimates are subject to change as more data is analyzed by the BEA.

Yet the Federal Reserve Bank of Atlanta’s GDPNow says the economy is growing at 1.3% as of July 25.

As David Stockman repeatedly has noted, this recovery, although coming out of the 2008 World Financial Crisis – the worst recession since the 1930’s Great Depression – is the weakest since the Great Depression.

Such data mean that the Fed is likely to lower interest rates by at least .25% in their FOMC July 30-31 meeting.  Some analysts are hoping for a .50% cut, but with the official rate at only 2.25-2.50%, the larger cut is unlikely.  The Fed will want to leave room for future “psychological” cuts.

Fed rate cuts mean that less interest is earned on bonds and CDs.  After all, if  bonds and CDs are paying miniscule rates, why not buy gold and silver which have done well on Fed rate cuts.  For example, in anticipation of lower interest rates, gold moved from $1280 May 30 to $1415 where it stands today.  Silver saw a nearly $2 rise during the same period.

As noted in yesterday’s post, deficit spending (along with the Fed’s loose monetary policy) dominates the political thinking in D.C.  This is a climate in which the metals will do well – very well.