The FOMC (Federal Open Market Committee) is currently holding its July meeting and a decision on benchmark lending rates is expected on Wednesday when this meeting ends. While news outlets will be focusing more on whether the Fed decides to retain the current lending rate or increase it, we think the more useful metric to watch is how each FOMC member votes.
Markets largely expect the Fed to hold its current benchmark lending rate, so it won’t be surprising when the press conference at the end of the meeting announces that decision. Astute investors will be paying attention to the vote tally, and there are sound reasons to back such an analysis.
For starters, Fed Chair Warsh has indicated that he is no fan of the Fed providing forward guidance on monetary policy direction as has been the practice in the past. That policy direction used to influence how markets behave in response to the expected future direction of upcoming FOMC decisions.
Seasoned investors will now be looking at the vote tally to get concrete pointers about how the Fed is likely to vote in upcoming meetings. For example, if all Fed members vote to hold current interest rate levels, a unanimous decision, markets are likely to expect a longer period to pass before a rate increase happens.
Such a unanimous vote says “we are all okay with continuing to watch the economy and are not in a hurry to raise lending rates.” In June, such unanimity happened when all 12 members of the committee voted to hold the current lending rates.
On the other hand, when some members dissent and prefer a rate hike, the signal sent is that those dissenting voices are of the view that the Fed has waited long enough and it is time to tighten monetary policy. The ongoing FOMC meeting is expected to produce two dissenting voices that would prefer rates to be hiked.
Beth Hammack, the President of the Cleveland Fed, and Lorie Logan, the President of the Dallas Fed, are expected to cast a dissenting vote during this ongoing meeting. The implications of such a 10-2 vote are that the voices favoring rate increases are getting louder and it is just a matter of time before others join them and monetary policy shifts into a hawkish gear.
As an investor in precious metals like gold and silver, you would be well advised to watch the vote tally because it holds solid clues on what is coming on matters of monetary policy. A rate hike would create a headwind for precious metals that don’t provide a return, unless other factors, such as high global oil prices and persistent inflation, support gold and silver prices.
Companies like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) will be watching the tally, and you as an investor ought to watch it as well because it will reveal more than what the vote decision says.
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