As was widely expected, at the end of its two-day Federal Open Market Committee meeting, the Fed today raised the benchmark federal funds rate. With one dissenter, committee members voted to increase the rate by one-quarter percentage point to a target range of 0.75 percent to 1 percent. This was no surprise given recent economic data and recent Fed official comments that strongly telegraphed the imminence of a hike.

However, there was a dovish surprise: In their quarterly economic projections, released concurrently with the policy statement, Fed officials indicated that their outlook for economic growth or inflation compared to three months ago remains essentially unchanged. In other words, the projections indicate that the monetary decision makers remain on a gradual-tightening game plan despite recent commentary from some officials that suggest they may hasten the pace interest rate hikes.

In its policy statement, the Fed kept its description of the pace of future increases to the fed funds rate as “gradual,” supporting the message sent by the economic projections noted above.

The markets celebrated the prospects of a continued dovish Fed against the backdrop of a possibly faster-growing economy under President Trump. Stocks, bonds, commodities, and precious metals all rallied. The greenback was one of the few assets to fall. Fortunately, we already closed out the UUP June 25 call option last week to lock in a gain when the dollar indicator turned neutral.

The president is expected to unveil the first fiscal 2018 budget outline tomorrow. He has promised to increase the defense budget by at least $54 billion by cutting the funding for non-defense programs while not touching Medicare.     

We think the Fed is reticent to tighten too quickly given its lack of details on the economic plans of the new administration. As it learns more of the president’s economic agenda, the central bank could very well change its  outlook.

Two days ago, we recommended the VanEck Vectors Gold Miners ETF (GDX) June 22 call option after our gold-stock indicator became bullish. After a down day yesterday, the gold-miner ETF was one of the biggest beneficiaries of the Fed decision today, gaining 7.7 percent today and this open trade is currently sitting on a nice gain.

As noted in our GDX June 22 call option Trade Alert on Monday, our stock indicator has become less bearish lately. Today, it has trickled into a range that’s more neutral than bearish—hence the “0” rating. Other stock market signals we track besides our proprietary stock indicator still suggest some underlying market weakness so we have decided to hold on for now. However, depending on how the indicator moves in the next few days, we may close one or both of the open SPY put options (June 220 and June 235). Another possibility is to roll over one of them into a longer-dated put.  

We believe a sharp stock market decline some time this year is still quite likely, but the post-election pervasive optimism has—so far—trumped all the variables that our stock indicator has consistently interpreted as bearish.

Besides the options, we currently hold open (long) positions in the following stocks: NovaGold (NG), Gabriel Resources (GBRRF), Schlumberger (SLB) and Trilogy Metals (TMQ).