Will Powell’s Put Support Gold?

Fed signals more patience with its monetary tightening, despite strong economy. Why? And what does it mean for the gold market?

Minutes from December FOMC Meeting and Gold

As everybody knows, in December the FOMC  voted unanimously to raise interest rates for the fourth time in 2018. We have analyzed the implications of that hike for gold in two editions of the Gold News Monitor (here and here). 

However, yesterday, the Fed published the minutes of its latest monetary policy meeting. The document shows that despite the apparent unanimity, the tensions were growing, as a “few” officials were actually arguing for the central bank to pause:

In their consideration of monetary policy at this meeting, participants generally judged that the economy was evolving about as anticipated, with real economic activity rising at a strong rate, labor market conditions continuing to strengthen, and inflation near the Committee's objective. Based on their current assessments, most participants expressed the view that it would be appropriate for the Committee to raise the target range for the federal funds rate 25 basis points at this meeting. A few participants, however, favored no change in the target range at this meeting, judging that the absence of signs of upward inflation pressure afforded the Committee some latitude to wait and see how the data would develop amid the recent rise in financial market volatility and increased uncertainty about the global economic growth outlook (emphasis added)

Another dovish signal was the addition of the word “some” to the post-meeting statement. As we have already analyzed in December, the Committee said last time that “some further gradual increases” in the federal funds rate will be appropriate. The minutes confirm our explanation, saying that the FOMC added the word “some” to indicate that “the Committee judged that a relatively limited amount of additional tightening would likely be appropriate”.

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