Gold prices move near session highs as Federal Reserve raises interest rates 75 basis points

The gold market is seeing some new buying momentum as the Federal Reserve looks to slightly adjust its aggressive monetary policy stance.

In a widely anticipated move, the Federal Reserve raised its Fed Funds rate by 75 basis points. This is the fourth consecutive supersized rate hike this year. While the central bank remains focused on bringing inflation down, it does appear to be adjusting its stance.

"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

Analysts and economists expected the Federal Reserve to signal a slowdown in its tightening cycle in December and through the early part of 2023

December gold futures last traded at $1,661.70 an ounce, up 0.77% on the day. "The market read that statement as leaning less hawkish on U.S. monetary policy going forward," said Jim Wyckoff, senior technical analyst at Kitco.com.

Katherine Judge, senior economist at CIBC, said that the more nuanced messaging in the statement gives the central bank a platform to slow the pace of rate hikes. However, she added that terminal rate expectations remain in place.

"Today's statement is still consistent with the median dot plot projections released back in September, which showed rates reaching 4.25-4.50% by year end (i.e. a further 50bp hike in December), and between 4.50-4.75% next year," she said in a note. "Our own forecast doesn't include that final 25bp hike in 2023, as we expect to see evidence that GDP and employment growth is slowing more than the Fed previously anticipated by then."

Some economists note that the Federal Reserve still sees resilient strength and high inflation in the economy. The Fed reiterated its stance that it is committed to brining inflation back down to its 2% objective.

"Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the statement said. "The Committee is highly attentive to inflation risks."

Paul Ashworth, Chief North America Economist at Capital Economics, said that with interest rates in restrictive territory the U.S. central bank has room to slow the pace of its tightening.

“Barring another upside inflation surprise in the October and November CPI reports, which we can’t completely rule out, it looks like the Fed is laying the groundwork to shift down to a 50bp hike in December and, if we’re right that core inflation will start to show signs of slowing soon, a 25bp rate hike at the January meeting next year,” he said.

By Neils Christensen

For Kitco News

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