Federal Reserve Expected to Hold Rates Steady at This Week’s Meeting; Gold Prices Hinge on Powell’s Statements
This week, the Federal Reserve will convene for its sixth Federal Open Market Committee (FOMC) meeting of the year. As one of the eight annual meetings, the FOMC is a platform for the Fed to deliberate economic forecasts and vote on potential changes in monetary policy, including adjustments to interest rates.
According to economists and industry experts, it is widely expected that the Fed will not raise its benchmark federal funds rate for the second consecutive meeting. Since the March 2022 meeting, the Fed has implemented a series of rate hikes, moving from 0-0.25% to fixed rates of 5.25%-5.5%. Notably, the Fed has raised rates at each consecutive meeting during this period.
CME Group’s FedWatch tool reaffirms this sentiment, as it presently predicts a 97% chance of no rate hikes this week. The key driver behind the Fed’s significant monetary policy shifts is data-driven, requiring confirmation that inflation is progressing towards its 2% target. Nonetheless, there is ongoing debate regarding whether the Fed will raise rates again prior to indicating the end of its restrictive cycle.
Market participants will closely follow the “tone” expressed in this week’s FOMC statement, Chairman Powell’s press conference, or remarks from Fed members, as they provide hints as to the timing of any forthcoming rate cuts. Deutsche Bank economist Matthew Luzzetti weighed in, stating, “If they declare the end of the cycle from a tightening perspective, that could lead to a significant easing of financial conditions. I don’t think they want to do that.” Luzzetti suggested that given the optimistic outlook and robust economic data post-June meeting, Fed policymakers may choose to halt further rate increases without formally declaring the end of the hiking cycle.
While interest rates are expected to remain unchanged, the impact on gold prices will hinge on the hawkish or dovish nature of the Fed’s statement. Consequently, the content of the statement is less significant than the market’s interpretation of the Fed’s stance. Gold prices reached a high of $1,980 on September 1 but have since witnessed a decline. Market observers will closely monitor Chairman Powell’s remarks, as they could influence the trajectory of gold prices moving forward.
As of 11:28 am Beijing time on September 18, spot gold was trading at $1,929.91 per ounce. The outcome of this week’s FOMC meeting and subsequent statements will undoubtedly play a pivotal role in shaping gold prices in the near term.