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The Fed Left Rates Unchanged — What Happened to the Gold Price?

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, but market watchers believe there’s still one more 25 basis point hike left in this cycle — an update to the dot plot, which shows where each Fed official thinks the federal funds rate is headed, shows that the median projection is 5.6 percent by the end of 2023.

Looking forward to 2024, two cuts of a quarter point each are anticipated. That’s less than the four decreases insiders were forecasting three months ago, which Andrew Patterson, senior economist at Vanguard, believes is a ‘telling’ change.

‘It means that the Fed is increasingly confident that they can pull off a soft landing and that the economy can withstand higher rates for longer,’ Reuters quotes him as saying after the meeting on Wednesday (September 20).

Powell says soft landing not guaranteed

However, in a press conference after the meeting wrapped up, Fed Chair Jerome Powell was quick to say a soft economic landing isn’t a baseline scenario — responding to reporters, he said it’s plausible, but may be determined by factors outside the Fed’s control. Powell also said the worst thing the Fed can do at this point is fail to restore price stability.

‘If you don’t restore price stability, inflation comes back and … you can have a long period where the economy is just very uncertain, and it’ll affect growth,’ he said, adding that the public is depending on the Fed to achieve price stability.

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.

“We want to see convincing evidence really that we have reached the appropriate (inflation) level, and we’re seeing progress and we welcome that. But … we need to see more progress before we’ll be willing to reach that conclusion,” Powell said.

Gold price reacts to Fed decision

The gold price reacted fairly neutrally to this week’s news from the Fed.

The yellow metal began the period just below US$1,910 per ounce, but rose as high as US$1,946.76 leading up to the gathering. Once the central bank’s decision came out, gold retreated to the US$1,930 level.

Gold tends to fare better when interest rates are low, and many experts agree that the Fed’s aggressive hiking is keeping a lid on the price. If that’s the case, then the central bank’s higher-for-longer strategy may weigh on the metal.

The Fed’s next meeting is scheduled to run from October 31 to November 1.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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