[institutional Review] there is still room for the long-term rise of precious metals in the Federal Reserve dove.

SMM: September 17, the Federal Reserve held since the revision of the monetary policy framework since the first interest rate meeting, is also the last meeting before the US election, but the precious metals market response is still lacklustre. In fact, since late August, the volatility of precious metals has gradually declined and market expectations have stabilized. What factors lead to the low volatility of precious metals? is the bull market of precious metals over?

The dovish attitude of the Federal Reserve has not changed.

There has been no significant change in the Fed's position at this meeting, but since the Fed chairman announced the adoption of a new monetary policy framework and introduced an average inflation target at the annual meeting of central banks around the world, as a result, this monetary policy statement has made a big change compared with the previous period.

The Fed's latest meeting statement shows that the Fed has become more tolerant of inflation and hinted at later tightening monetary policies such as interest rate hikes. The Fed said in a statement that the committee aims to achieve full employment and inflation of 2% over a longer period of time. As inflation continues to fall below this longer-term target, the committee will seek to achieve an inflation rate of moderately above 2 per cent for a period of time so that long-term inflation averages 2 per cent and longer-term inflation expectations remain firmly anchored at 2 per cent.

On bond purchases, the Fed said it would increase its holdings of Treasuries and institutional mortgage-backed securities at least at the current rate in the coming months to maintain smooth market operations and help create loose financial conditions. to support the flow of credit to residents and businesses.

In addition, the Federal Reserve also released the latest interest rate lattice chart and economic forecasts at this meeting. The bitmap shows that the Fed will maintain current interest rates until at least 2023, while economic forecasts are much higher than before, with the Fed forecasting a median GDP growth forecast of-3.7 per cent at the end of 2020, compared with-6.5 per cent in June, and 4 per cent GDP growth at the end of 2021 and 5 per cent in June.

图1:美联储点阵图

Data source: FED, CITIC Construction Investment Futures

The chairman of the Federal Reserve said at a news conference that the US economy is recovering faster than expected, but overall activity is still below the pre-novel coronavirus level; the Fed is still committed to using all tools and is prepared to adjust asset purchases as needed; reiterated that economic development will still depend on the government's ability to control the epidemic and may need more fiscal and monetary support.

On the whole, the dovish attitude of the Fed has not changed, and monetary policy will continue to maintain a loose tone. However, the increase in the Fed's growth forecast suppressed the Fed's dovish degree in the future, and Powell did not show a tendency to ease further, dampening market expectations of the Fed more loosely.

The deadlock in fiscal stimulus is hard to break.

In early August, part of the relief measures for the unemployed in the United States expired, and the market expected a new round of fiscal relief policies in the United States. However, after many rounds of confrontation between the two parties, it is still difficult to reach a consensus on a new stimulus package, putting some pressure on the market, and U. S. stocks have fallen back since September.

The US Senate failed to vote on a new round of economic stimulus bill to deal with the COVID-19 epidemic on Sept. 10, and the time is getting closer and closer to the US general election. The House of Representatives was scheduled to recess before October 2 to allow lawmakers to return to their home states to run for election on November 3, but House Speaker Nancy Pelosi said Democrats were prepared to postpone the October recess in order to reach an agreement with Republicans on a new bailout package. Us Treasury Secretary Mnuchin testified in the Senate that now is not the time to worry about the fiscal deficit or the Fed's balance sheet, and lawmakers should not postpone a new round of anti-epidemic bail-outs because of concerns about the size of the US deficit or the Fed's balance sheet. Mnuchin also said recently that negotiations on the relief of the epidemic. "getting in the way of politics", he can continue to negotiate at any time. Republicans believe that the impasse is difficult to break because Democrats deliberately do not want to pass any plan, because the passage of any plan may lead to adverse results for the Democratic Party in the general election.

At the end of May, the Democratic-controlled House of Representatives approved a new 3.4 trillion bailout plan, but the Republican Senate opposed any new bailout plan. At the end of July, Pelosi reduced the amount to $2.4 trillion, but Republicans could only accept $1.3 trillion. At present, the two sides are still deadlocked over the amount of the bailout plan, and as the US election approaches, there may not be enough time for negotiations before the election, which makes it difficult for precious metals to rise significantly before November.

However, at present, the US economy has not yet returned to normal, the unemployment rate is still high, financial relief is still necessary, and Federal Reserve Chairman Powell is constantly calling for new fiscal support policies. Therefore, with the release of the results of the US election, a new fiscal stimulus may be launched soon, and the follow-up support of precious metals is also worth looking forward to.

To sum up, although the economy is recovering, it is still generally lower than the level before the epidemic, and further economic recovery still needs policy support. Although the Fed's monetary policy has slowed, the Fed's dovish attitude has not changed, and with the US election, a new round of fiscal support is still available. Therefore, although there are few short-term incentives and precious metals enter a state of shock, long-term support remains, and gold and silver bulls can still be expected.

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