Gold prices near session highs as Federal Reserve raises interest rates by 75 basis points

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(Kitco News) – The gold market is seeing renewed buying momentum as the Federal Reserve looks to adjust its aggressive monetary policy slightly.

In a move widely anticipated, the Federal Reserve raised its federal funds rate by 75 basis points. This is the fourth consecutive oversized rate hike this year. While the central bank remains focused on reducing inflation, it appears to be adjusting its stance.

“The committee anticipates that continued increases in the target range will be appropriate to achieve a monetary policy stance tight enough to bring inflation down to 2% over time. In determining the pace of future increases in the target range, the committee 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 expected the Federal Reserve to signal a slowdown in its tightening cycle in December and 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 leaning less on US monetary policy going forward,” said Jim Wyckoff, principal technical analyst at Kitco.com.

Katherine Judge, senior economist at CIBC, said the statement’s more nuanced message gives the central bank a platform to slow the pace of rate hikes. However, she added that expectations for terminal rates remain in place.

“Today’s statement is still consistent with the dot chart median projections released in September, which showed rates reaching 4.25-4.50% by year end (i.e. i.e. another 50 basis point hike in December), and between 4.50 and 4.75% next year,” she said. in a note. “Our own forecast does not include this final 25 basis point hike in 2023, as we expect to see evidence that GDP and employment growth are slowing more than the Fed had expected by then. .”

Some economists note that the Federal Reserve still sees resilient strength and high inflation in the economy. The Fed reaffirmed its desire to bring inflation back to its 2% target.

“Recent indicators point to modest growth in spending and output. Jobs gains have been robust in recent months and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances. pandemic-related demand, rising food and energy prices, and broader price pressures,” the statement said. “The Committee is very attentive to inflation risks.”

Paul Ashworth, chief North American economist at Capital Economics, said with interest rates in restrictive territory, the U.S. central bank has an opportunity 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 move higher. by 50 basis points in December and if we are correct, that core inflation will soon start to show signs of slowing, a rate hike of 25 basis points at the January meeting next year,” did he declare.