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(Kitco News) – The gold market is seeing renewed buying momentum as the Federal Reserve tries to adjust its aggressive monetary policy slightly.
The Fed raised its Fed Funds rate by 75 basis points. This is the fourth consecutive excessive rate hike this year. Although the central bank remains focused on slowing inflation, it appears to be adjusting its stance.
“The Committee assesses that ongoing increases in the target area are appropriate to achieve a monetary policy stance that is sufficiently restrictive to return inflation to 2 percent over time. The Committee assesses the pace of future increases in the target area. takes into account the cumulative tightening of monetary policy, the lags in which monetary policy affects economic activity and inflation, and economic and financial development.
Analysts and economists expected the Federal Reserve to announce a slowdown in its tightening cycle in December and into early 2023.
December gold futures last traded at $1,661.70 an ounce, up 0.77% on the day. “The market read that statement as less hawkish on US monetary policy going forward,” said Jim Wyckoff, senior technical analyst at Kitco.com.
CIBC senior economist Katherine Judge said the statement’s nuanced messages give the central bank a platform to slow the pace of rate hikes. However, he added that the final interest rate expectations will remain in place.
“Today’s statement remains consistent with median point forecasts released in September, which showed rates at 4.25-4.50% by the end of the year (ie a further 50bp hike in December) and 4.50-4.75% next year,” he said. in the note. “Our own forecast excludes that final 25bp increase in 2023, as we expect to see evidence that GDP and employment growth will slow more than the Fed had anticipated by then.”
Some economists note that the Federal Reserve sees continued strength in the economy and high inflation. The Fed reiterated its position that it is committed to reducing inflation back to its 2 percent target.
“Recent indicators point to modest growth in consumption and output. Job gains have been strong in recent months and the unemployment rate has remained low. Inflation remains high, reflecting pandemic-related supply-demand imbalances, higher food and energy prices, and broader price pressures,” the statement said. . “The committee is very attentive to inflation risks.”
Paul Ashworth, chief economist for North America at Capital Economics, said that with interest rates in the restrictive zone, the US central bank has room to slow its tightening pace.
“Barring an increase in inflation in the October and November CPI reports, which we cannot completely rule out, it looks like the Fed is laying the groundwork to move to a 50bp hike in December, and if we are correct inflation will soon start to show signs of slowing , a 25bp rate hike at the January meeting next year,” he said.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect his own Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to make exchanges in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and/or damage arising from the use of this publication.
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