Silver Price Reacts After Fed Hints at Year-end Rate Hike

The US Federal Reserve hinted that it may raise rates in December if inflation rises; it also plans to hike rates three times in 2018.

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The silver price fell on Wednesday (September 20) after the US Federal Reserve’s latest meeting. The central bank did not raise rates, but signaled that it may do so by the end of the year.

Spot silver was down 1.27 percent, at $17.10 per ounce, after the Fed wrapped up its two-day policy meeting. Wall Street stocks fell and bond yields rose while gold, which rose ahead of the Fed meeting, reversed course and fell briefly below $1,300 per ounce before recovering.

The silver price often reacts similarly to the gold price, so a brief drop in prices for both metals was not unexpected. Market watchers also widely anticipated that the Fed would leave interest rates unchanged at this week’s meeting.

As mentioned, the central bank hinted that a rate hike may be coming later this year if inflation rises. It also said that it intends to increase rates three times in 2018. Those increases would bring the benchmark rate to between 2 and 2.25 percent by the end of next year.

During a press conference to discuss this week’s meeting, Fed Chair Janet Yellen said US economic activity has been “rising moderately” so far in 2017. “We think the economy is performing well,” she added. One of the Fed’s key mandates has been to maximize employment, and it appears to be meeting that goal. The US unemployment rate is at a near 16-year low of 4.4 percent, with inflation remaining below that level.

The Fed also announced on Wednesday that it will let a portion of its $4.5-trillion balance sheet mature without being replaced, starting in October. Reductions will amount to $10 billion per month, and will gradually rise to $50 billion per month.

Forecast are mixed for the silver price in Q4. Firms polled recently by FocusEconomics provided a range of predictions. Macquarie gave the highest forecast at $20.50, with Capital Economics giving the lowest at $15.80. The consensus Q4 silver price forecast from all the firms consulted came in at $17.30.

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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.

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