(Kitco News) – The gold market is seeing some fresh buying momentum as the Federal Reserve tries to slightly adjust its aggressive monetary policy.
In a widely anticipated move, the Federal Reserve raised the Fed Funds rate by 75 basis points. This is the fourth consecutive increase in super-sized interest rates this year. While the central bank remains focused on reducing inflation, it appears to be adjusting its stance.
“The Commission expects that continued increases in the target range will be appropriate to achieve a monetary policy stance that is sufficiently restrictive to return inflation to 2% over time. In determining the pace of future increases in the target range, the Commission will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
Analysts and economists had expected the Federal Reserve to signal a slowing of the tightening cycle in December and through early 2023.
December gold futures last traded at $1,661.70 an ounce, up 0.77% on the day. “The market read this statement as less hawkish on US monetary policy going forward,” said Jim Wyckoff, senior technical analyst at Kitco.com.
Kathryn Judge, senior economist at CIBC, said the more nuanced messaging in the statement gives the central bank a platform to slow the pace of rate hikes. However, he added that terminal rate expectations remain in place.
“Today’s statement remains consistent with the midpoint projections published in September, which showed rates reaching 4.25-4.50% by the end of the year (ie a further 50bp increase in December) and between 4.50-4.75% next year,” he said. in a note. “Our forecast does not include that final 25 basis point increase in 2023, as we expect to see evidence that GDP and employment growth are slowing more than the Fed had forecast until then.”
Some economists note that the Federal Reserve still sees resilient strength and high inflation in the economy. The Fed reiterated its position that it is committed to reducing inflation back to its 2% target.
“Recent indicators point to modest growth in spending and output. Job gains have been strong in recent months and the unemployment rate has remained low. Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher food prices and energy and broader price pressures,” the statement said. “The Commission is particularly alert to inflationary risks.”
Paul Ashworth, chief North American economist at Capital Economics, said that with interest rates in restrictive territory, the US central bank has room to slow the pace of its tightening.
“Barring another upside inflation surprise in the October and November CPI reports, which we can’t completely rule out, it looks like the Fed is setting the stage for a 50bp hike in December and, if we’re right on that core Inflation will start showing signs of slowing down soon, a 25 basis point rate hike at the January meeting next year,” he said.
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