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The US Federal Reserve left rates unchanged at 5.25 to 5.5 percent, as was widely expected. How did the gold price react?
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The US Federal Reserve left interest rates unchanged at 5.25 to 5.5 percent at this week's meeting.
The widely anticipated move came after the central bank's final gathering of 2023, held from Tuesday (December 12) to Wednesday (December 13). The Fed has hiked rates 11 times since March 2022, but this is its third pause in a row.
Looking forward to 2024, investors are watching closely to see if the Fed will be able to engineer a soft landing. With inflation seemingly under control and job growth looking solid, many market participants believe it's feasible.
Speaking at a press conference after the meeting, Fed Chair Jerome Powell as usual didn't make any promises. However, he did say that Federal Open Market Committee members believe 5.5 percent is the terminal rate.
"People are not writing down rate hikes" in their latest economic projections, Powell noted. The most recent dot plot, which shows where each Fed official thinks the federal funds rate is headed, points to at least three rate cuts in 2024, assuming each is 25 basis points. An additional four cuts are projected in 2025 for a full percentage point that year.
The Fed remains committed to its 2 percent goal for inflation, although Powell admitted that it could get more difficult at this point. “So far, so good, although we kind of assume it will get harder from here,” he commented.
Markets and gold react to Fed decision
US markets reacted positively to the Fed's announcement, with the Dow Jones Industrial Average (INDEXDJX:.DJI) rising to a record close of above 37,000. Meanwhile, the S&P 500 (INDEXSP:.INX) passed 4,700 for the first time since January 2022, and the Nasdaq Composite (INDEXNASDAQ:.IXIC) climbed to 14,733.96.
“The Fed has given the market an early holiday gift today when, finally, for the first time, they have commented positively about inflation,” Gina Bolvin, president of Bolvin Wealth Management Group, told CNBC. “It appears that the Fed is moving in the market’s direction, rather than the market moving towards the Fed. The Santa Claus rally may continue.”
The gold price also took off after the Fed's decision, jumping from just above US$1,982 per ounce to more than US$2,030. The yellow metal tends to fare better when rates are lower, and it was also supported by a weaker US dollar.
Gold recently a reached a new all-time high of US$2,152.30, and many experts focused on the sector believe the yellow metal is poised to move higher. The broad consensus is that the mainstream expectation for a soft landing won't pan out, and gold will thrive once it becomes clear that other areas of the economy are suffering.
"People who think we're going to have a soft landing because we haven't had a recession yet — I think they haven't studied history, but they're also living in cloud cuckoo land in my view," Adrian Day, president of Adrian Day Asset Management, told the Investing News Network in November.
The gold price closed Wednesday at US$2,027.71.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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With an eye for detail and over a decade of experience covering the mining and metals sector, Charlotte is passionate about bringing investors accurate and insightful information that can help them make informed decisions.
She leads the Investing News Network's video and event coverage, and guides a team of writers reporting on niche investment markets.
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With an eye for detail and over a decade of experience covering the mining and metals sector, Charlotte is passionate about bringing investors accurate and insightful information that can help them make informed decisions.
She leads the Investing News Network's video and event coverage, and guides a team of writers reporting on niche investment markets.
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