Once again, the US Federal Reserve left interest rates unchanged at 5.25 to 5.5 percent at its latest meeting.
The central bank was widely expected to stay the course at this month’s gathering. However, according to the most recent update to the Fed dot plot — which shows where each Fed official thinks the federal funds rate is headed — there may still be one more 25 basis point hike left in this cycle. The median projection is 5.6 percent by the end of 2023.
In its November statement, the Fed’s language hints that further rate hikes might still be needed to further battle inflation and meet the central bank’s 2 percent target.
“The committee wants the markets to know the door is still open to further hikes if necessary,” Barron’s quoted Jeffrey Roach, chief economist with LPL Financial, saying after the meeting on Wednesday (November 1).
Powell says slower growth, softer labor market still needed
In a press conference after the meeting wrapped up, Fed Chair Jerome Powell was quick to say that despite the decision to leave rates unchanged, the right conditions for fully reigning in inflation are still not in play.
“I still believe, and my colleagues for the most part still believe, that it is likely to be true … that we will need to see some slower growth and some softening in the labor market to fully restore price stability,” he said.
The central bank remains committed to bringing inflation down to its 2 percent target, but emphasized that it will continue to assess various factors as it determines its next steps this year and into next year.
In the September quarter dot plot, the general consensus among Fed officials was that two cuts of a quarter point each could be on the horizon for 2024. However, Powell was clear in his November 1 statement that rate cuts are not yet top of mind for the Fed while inflation remains a threat.
“The fact is the committee is not thinking about rate cuts right now at all. We’re not talking about rate cuts,” Powell said. “We’re still very focused on the first question, which is ‘have we achieved a stance of monetary policy that’s sufficiently restrictive to bring inflation down to 2 percent over time, sustainably?’ That is the question we’re focusing on.”
Gold price reacts to Fed decision
The gold price reacted fairly neutrally to this week’s news from the Fed, much in the same vein as September’s decision to leave rates unchanged.
The yellow metal declined by 0.29 percentage points on the day to trade at US$1,988.50 per ounce. In the previous days leading up to the decision, the price of gold had managed to push past the US$2,000 level to as high as US$2,005.60 on October 27.
Gold tends to fare better when interest rates are low, and many experts agree that the Fed’s aggressive hiking has kept a lid on the price. If that’s the case, then the central bank’s higher-for-longer strategy may continue to weigh on the metal.
The Fed’s next meeting is scheduled to run from December 12 to December 13.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.