Fed Keeps Rate Unchanged, Revises GDP Upward, and Releases Dot Plot

As it pertains to gold, gold spiked to its intraday high of $1968.90 immediately following the release of the policy meeting statement which included the most current revised economic summary or dot plot.

FOMC Statement and Gold

“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”

However, once Chairman Powell began his press conference gold prices eroded throughout the one-hour conference, especially during the Q&A period when financial commentators asked questions of the chairman. As of 4:00 PM EDT, gold futures basis the most active December contract is at $1955 after factoring in a $2.80 gain.

“We’re in a position to proceed carefully in determining the extent of additional policy firming…However, we want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress and we welcome that. But, you know, we need to see more progress before we’ll be willing to reach that conclusion.”

Key Takeaways

There were many key takeaways from today’s FOMC statement. The financial markets had fully priced in the high likelihood that the Federal Reserve would not raise rates at today’s meeting, which is exactly what occurred. However, both the statement and the following press conference clarified some of the uncertainty as to future rate hikes.

The majority of voting Fed members expect one more rate hike before the end of the year. Of the voting members, 12 voted in favor of an additional rate hike with the remaining 7 opposing it.

Anticipating stronger-than-expected economic growth the Federal Reserve upwardly revised its projection on GDP and now anticipates that the economy will rise by 2.1% as viewed through the GDP. The Federal Reserve will continue its hawkish monetary policy by liquidating bond holdings and reducing its balance sheet. They also are projecting only 2 rate cuts in 2024 which is 2 fewer than were indicated in the June economic projections.

Gold’s Reaction

According to the projections the endgame is to take the Fed funds rate to 2.9% in 2026. Initially, the release of the statement was interpreted as a bullish factor for gold taking it to today’s high. However, the devil is in the details, and on further reflection combined with Powell’s press conference gold traded from double-digit gains back to close to unchanged by 5:00 PM EDT.

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Wishing you as always good trading,

Gary S. Wagner