Could the Fed Go Dovish?

The Federal Reserve opens its March Open Market Committee meeting today. Most analysts say there is a 100% chance for a rate hike during this go-round. Overall, there is a decidedly hawkish attitude when it comes to the Fed. The real debate right now revolves around whether the central bank will hike three or four times in 2018.

But Peter Schiff said in his most recent podcast he isn’t certain about all of these rate hikes.

The fact is I’m still not 100% sure the Fed is going to hike on Wednesday. Now, I would argue or agree that it’s more likely than not that the Fed is going to hike because they’ve been hiking interest rates all along. The Fed, so far, has not given any indication that they’re not going to hike because they don’t want to give up the ghost of this vibrant recovery where they need to raise rates because everything is going so well. But that whole narrative, that whole illusion, seems to be fading very quickly.”

So, could we see a more dovish Fed before the week is out?

Peter isn’t the only one a little skeptical about the possibility of all this monetary tightening. In a report published Monday, TD Securities head of strategy Bart Melek said “Given the current equity market weakness, recent lackluster economic data and trade war rhetoric getting louder, we judge that a hawkish tone is not … warranted at this time.”

Melek said this could be good news for gold.

Given recent positioning, if Fed officials do not adjust the dot plots higher, the yellow metal could find a bid and move considerably higher later this week.”

As Peter pointed out in his podcast last week, all of this economic optimism isn’t supported by the numbers. Americans are broke and saddled with debt. On top of that, there is no sign of all this promised economic growth. In fact, on Friday the Atlanta Fed dropped projected GDP for Q1 down another notch to 1.8%. Peter said that should cast at least a little doubt on all this rate-hike talk.

Now, does it sound like the Fed should be rushing to hike rates when GDP growth for the first quarter is only going to be 1.8%? I mean, does that sound like an economy that’s in danger of overheating?”

The stock market could also weigh on the Fed. The Dow Jones dropped more than 300 points on Monday. At the low, it was down almost 500 points and it’s actually in the red for the year. Meanwhile, the NASDAQ fell 137 points to start the week – a 1.84% decline. So, if the markets continue to tank, will the Fed really be willing to hike?

If the Dow is back on the lows … is the Fed going to follow through with this threat? Which it really is – it’s a threat to the markets Is the Fed going to want to raise rates with the economic data imploding and the stock market selling off, or potentially collapsing? So, that’s a wildcard. We’ll see what happens, because the Fed always wants to prop up the market, at least that has been the case in the past.”

This brings up an interesting point. Trump has told us to score his presidency on the stock market. Is his guy – Jerome Powell – going to undercut the president? Because there is no doubt that rising interest rates are not going to be good for stocks.

If the market believes the Fed is going to keep on raising rates, why would it stop falling? We know how overvalued the market is. Higher rates just increase the overvaluation. And if the economy is slowing down – remember, the whole rally in the stock market is predicated on this robust economic growth that’s not materializing. And of course, if we do not get the robust economic growth, then the budget deficits are going to be much bigger than what people thought because everybody thought that we would pay for a good chunk of the tax cuts with all the extra economic growth that the tax cuts were going to produce. Well, if that extra economic growth doesn’t actually materialize, then the deficits will be much bigger.”

Of course, it’s impossible to know what the Fed will do on Wednesday, much less through the rest of the year. But given current dynamics, it just seems increasingly unlikely that we will see aggressive tightening continue. We may well see a more dovish tone this week.

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