The Fed rate meeting is about to be held, the market expects the Fed to aggressively tighten the currency, and the “anchor of global asset pricing” breaks through the key point, and the price of gold plummets.
The Fed’s FOMC meeting on interest rates is about to be held, and the continued high inflation level has made the market’s expectations for the Fed to raise interest rates and shrink its balance sheet.
Affected by this, U.S. bond yields rose further, especially the benchmark 10-year U.S. Treasury yield, known as the “anchor of global asset pricing”, exceeded 3% overnight, the first time since December 2018.
In overnight trading, the real yield on the 10-year U.S. Treasury bond also exceeded 0%, which once again reflected the market’s expectation of the Fed’s aggressive monetary tightening after it “turned positive” for the first time in two years nearly two weeks ago.
In addition, this also had a negative impact on the safe-haven asset gold. The price of gold fell below $1,900 immediately, the largest decline in two months and a new low in two and a half months, falling all the gains since the Russian-Ukrainian conflict.
The Fed’s “double brake” is coming
With the U.S. inflation level approaching a 40-year high in March this year, the Federal Reserve is eager to tighten monetary policy, and the market is holding its breath for the arrival of the Fed’s “double brakes”.
The market currently generally expects that in the upcoming FOMC meeting on Wednesday, the Fed is very likely to announce a 50 basis point interest rate hike, and the balance sheet shrinkage will also start in May.
Wall Street News mentioned in previous articles,In his latest appearance, Powell strongly expressed a hawkish attitude, saying that the Fed will discuss the feasibility of raising interest rates by 50 basis points in its interest rate meeting, and hinted that it will raise interest rates more than once this year.
The latest data from the CME Group shows that the probability of the Fed raising interest rates by 50 basis points in May is as high as 99.6%, which is close to 100%. The expected value a month ago was only 43.9%; The probability is only 0.4%.
The minutes of the Fed’s March meeting previously released also hinted at the possibility of one or more rate hikes by 50 basis points in future FOMC meetings, as well as the detailed timing and path of the balance sheet reduction.
In addition, Wall Street generally expects the Fed’s balance sheet reduction will be larger and faster than it was five years ago.This also shows the determination of the current Federal Reserve’s full firepower to start “double brakes” to resist inflation.
U.S. Treasury yields break above key level Gold prices plummet
After the market fully expected the Fed’s “double brakes”, the 10-year U.S. Treasury bond yield has broken through the key point first, rising to 3.008% overnight.
The 10-year U.S. Treasury yield then fell below 3% to close at 2.995%, still up from Friday’s 2.885%, according to data from bond trading platform Tradeweb.
In commodities, safe-haven gold was the big loser overnight.
Due to multiple blows such as the re-strengthening of the US dollar, the rise in US bond yields, and the “positive” real yield, the New York gold futures, which had just regained the $1,900 mark last Friday with a rebound for several days, fell sharply.
COMEX June gold futures closed down $35.89, the first one-day drop of nearly 2% in nearly two months, and the first closing close to $1,860 in two and a half months.
The Wall Street Journal quoted Zachary Griffiths, senior macro strategist at Wells Fargo at Wells Fargo, as saying:
There is a lot of uncertainty around inflation, monetary policy and geopolitics right now. The Fed’s tightening of monetary policy is unlikely to ease until inflation fears subside, especially now that a new wave of global infections is weighing on supply chains and the Ukraine crisis is pushing up commodity prices.
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