Silver Price Rallies as Fed Pauses Interest Rate Hikes

After two days of meetings regarding monetary policy, the US Federal Reserve officially announced on Wednesday (March 20) that it will be pausing interest rate hikes for the entirety of 2019, kickstarting an upward trend for silver.

In addition to the pause in interest rate hikes, the Fed also stated that it will only raise borrowing costs once more through 2021, and will slow the monthly reduction of its holdings of treasury bonds from up to US$30 billion to up to US$15 billion as of May.

The Fed has made these changes based on the fact that it no longer feels it needs to offset inflation with restrictive monetary policy.

“Recent indicators point to slower growth of household spending and business-fixed investment in the first quarter […] Overall inflation has declined,” the Fed stated in its policy statement. The central bank kept federal funds rates at 2.5 percent.

The Fed noted that it will end its balance sheet runoff come September on the provision that the economy and money market conditions evolve as expected. If that happens, redemptions of mortgage-backed securities will be reinvested in treasuries up to as much as US$20 billion per month.

The combined announcements indicate that the Fed is now pausing on both fronts to adjust to weaker global growth and a slightly weaker outlook for the US economy.

“Growth of economic activity has slowed from its solid rate in the fourth quarter,” the Fed stated.  

As it did with gold, the calming of Fed hikes lifted the white metal, bringing it slightly closer to the psychological level of US$16 per ounce.

Investors are still taking in the Fed’s announcement, which has kept the US dollar down and allowed silver to continue its gains.

Back in December, following the fourth and final hike of 2018, Junior Stock Review Founder Brian Lenitold the Investing News Network, “[it’s] anyone’s guess as to how this plays out, but I think it’s safe to say, given the outlook, 2019 should be a good year for precious metals.”

Policy makers are also expected to lift rates once to 2.6 percent by the end of 2020, and then hold them steady in 2021.

Looking ahead for silver, analysts at FocusEconomics believe that this may be the beginning of a steady rally for the white metal, as they expect prices to rise both this year and next.

“[A] more dovish Federal Reserve will support silver prices over the medium-term. Moreover, China’s continued economic stimulus measures should feed through to stronger industrial fabrication demand, while India is expected to remain a principal consumer of silver,” the analysts stated.

As of 9:46 a.m. EST on Thursday (March 21), silver was trading at US$15.48.

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