Fed Watch: Expect A Rate Hike

A: What a crazy past 2 weeks in the precious metal markets as those hedge fund/speculative investors continue to dump a huge amount of holdings causing the current correction. Core PPI readings were higher than expected and energy prices, although not at highs anymore, continue to be at uncomfortable levels in this inflation-fearing world we currently live in.

Precious metal prices have been absolutely hammered over the past 2 weeks as traders unload huge positions and take profits after almost 1 year of incredible gains. Nothing uncommon about this and as far as the fed is concerned, keep it coming down! The higher precious metal prices are the more worried the fed will be that it will eventually cause inflation.

Check out this 1 month chart of NY Gold courtesy of Kitco.com:



...and silver prices:



Energy prices remain close to the $70/Barrel mark and US Economic data, specifically Core PPI, continues to show inflation pressures as the fed gets closer to their June 28th meeting.

According to CNN Money article:

...the core rate of inflation, which excludes food and energy, was up 0.3 percent in May, compared with more modest gains of 0.1 percent in both March and April. That was slightly higher than the 0.2 percent increase analysts had been expecting.

The 0.3 percent rise in core inflation, excluding food and energy, was the biggest rise since a 0.4 percent increase in February. Wall Street has been plunging over the past five weeks as investors have grown increasingly worried that rising inflation pressures will prompt the Federal Reserve to continue pushing interest rates higher.

Its gonna be very interesting to see what Bernanke does at this next meeting, but this trader/real estate agent still thinks a 1/4 point rate hike is in store. In fact, for those who expect a pause I would think there is more of a chance the fed will raise 1/2 point (50 basis points) and then issue a clearer statement than there is for no rate hike at all!

Energy prices are still too high for the fed to sit tight as the inflationary pressure of higher energy prices is LAGGING, and doesn't show its ugly face until down the road! So, if energy prices are still high today, the fed has to worry about its effects 10-12 months from now!