The Fed has concluded its latest policy meeting today. The end of the meeting saw the central bank raise rates by another 75-basis points, for the third consecutive time. The Fed seems intent on getting inflation under control. The central bank discussed the economic slowdown likely to ensue and how unemployment is likely to rise. Despite these risks, however, the Fed is staying on track, thus far, and will continue with more aggressive rate hikes in the months ahead.
The path ahead that the Fed is laying out may not be pleasant. As the Fed hikes rates further, the economy will keep slowing. While a recession will become an increasingly likely effect of that hiking, times are going to get tougher for everyone regardless of whether an actual recession is seen or not. The biggest question may become whether the Fed can get inflation under control or not.
Fed Chairman Jerome Powell is giving his press conference as of this writing. Powell is suggesting that nothing has really changed since Jackson Hole a few weeks ago, and that getting inflation back towards the 2% area is job #1. Powell also said there would be no interest rate cuts until he is confident that inflation is heading back to 2%.
The fact that Powell is even discussing a rate cut could be viewed by some as being dovish. Since Powell benign speaking, stocks have reversed course from solidly lower to solidly higher. Gold has also changed its tune, moving from negative to positive territory in a short period of time. While the Fed Chief’s commentary is likely meant to be nothing of the sort, it may show just how reactive investors are to the notion of lower rates.
There may be some pain ahead for investors, but the Fed has so far maintained its credibility and appears intent on continuing to do so. How that actually plays out is unknown. The Fed is likely to keep raising rates into the end of the year. Despite rates now being in the 3-3.25% area, the Fed says it believes rates will end next year well over the 4% level. According to the Fed, rates will then start to ease a bit in 2024 and 2025.
What this means for gold is unclear. Given the metal’s reaction to Powell’s commentary, it seems as if investors may already be looking forward to the next era of easing. If the market feels that lower rates are coming, even if not for some time, it may provide a degree of comfort for investors who are looking at the big picture. For gold, this means that long-term buyers who are looking for bargains may see gold around current levels as an excellent value unlikely to be around much longer. While that may not fuel a wicked rally in the yellow metal, it could support the metal and prevent it from falling much further.