Federal Reserve Chairman Jerome Powell said the Fed is prepared to keep interest rates higher for longer than expected to keep inflation down to 2%. Following this, the gold market gave back all of its gains on Wednesday.
Gold prices fell after Powell’s hawkish speech
cryptokoin.comAs you follow from , the Federal Reserve kept interest rates unchanged on Wednesday, in line with expectations. Thus, the Fed announced that it would leave the federal funds rate in the range of 5.25% and 5.50%. However, Powell said that a rate hike is still on the table at monetary policy meetings in November or December. This showed that Powell continued his hawkish tendency. Even though the Fed did not raise interest rates, Powell’s hawkish stance caused gold prices to retreat.
However, Powell added that regardless of a final rate hike, monetary policies will need to remain restrictive for the foreseeable future. He stated that the Central Bank remains determined to reduce inflation to the 2% target. The question for many investors is how long the Fed will keep interest rates at these high levels. Because Powell said it’s too early to tell whether interest rates are restrictive enough and have been for long enough.
These developments will lead to safe haven flows for gold
The gold market gave back its gains during the week as Jerome Powell continued his hawkish tendency. Gold fell over 0.75% from session highs to $1,915. Despite Powell’s hawkish stance, markets see only a 50/50 chance of another rate hike this year, according to some analysts. That’s why gold protects itself. OANDA senior market analyst Edward Moya underlines the following in a note:
Gold, economy While the risks of it breaking increase, the hawk holds up well despite a jump. Higher levels for longer periods of time have mostly been priced into gold. But eventually bad news for the economy will lead to safe-haven flows for gold.
Higher for longer!
Paul Ashworth, chief North American economist at Capital Economics, continues to question the Fed’s stance as it raised its economic outlook for this year and 2024. In this context, Ashworth makes the following assessment:
If the Fed is right about the economic outlook, then rates could arguably stay high for longer. We do not believe these predictions. The real economy will weaken significantly and, whatever happens, the core inflation It will return to the target much faster. Under these circumstances, we expect the Fed to keep interest rates unchanged for the rest of this year and cut interest rates by close to 200bp next year.
Fed will stop here, but easing next year…
Jefferies economist Thomas Simons also says he does not expect the Fed to raise interest rates anymore this year. However, he predicts a potential easing in early 2024. Starting from here, Simons expresses his views as follows:
We left our policy expectations unchanged based on today’s Fed communication. We still expect 5.375% will be the final rate this cycle and that the Fed will have to cut more aggressively in the first half of 2024 than is priced in the market (about a 30% chance of a new hike at the next meeting) or described in the dot chart.
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