Gold Higher As Fed Hikes 75 Points
The Fed raised interest rates on Wednesday for the fourth time in 2022. The Fed lifted rates by .75% while also admitting that the economy is slowing. The central bank hiked rates by .75% for the second time in a row as it looks to get control over inflation which sits at a 40-year high. The benchmark rate now stands in a range of 2.25% to 2.5%. Fed Chairman Jerome Powell did suggest the Fed may slow the pace of further rate hikes in order to assess their impact.
The gold market is solidly higher following the rate hike. Spot gold is higher by over $21 per ounce and low sits just under the $1740 level. The market could be moving higher on the notion that peak tightening has been priced in. It could have also construed some hesitancy from the Fed to keep taking rates aggressively higher. The second consecutive 75-point hike from the Fed is the most stringent action from the central bank since it began using overnight funds rates as the primary monetary policy tool back in the early 1990s. The Fed means business when it comes to quelling inflation and it is attempting to convey that message yet again.
Worries over a Fed-induced recession have risen in recent months. Those worries were exacerbated by the Fed’s 75-point hike last month and may now become even more serious after today’s hike. The Fed did cite some worrisome issues, including spending and production. Leaving the door open for September, the Fed may now find itself more comfortable taking a wait-and-see approach.
Although the Fed’s action today was hawkish, it was not seemingly followed up by hawkish rhetoric. Today could have been a make or break day for the gold market. It appears it was a make day as prices have rallied since the Fed. Chairman Powell stated that the Fed may need to have the economy grow less than its potential for a period of time in order to create some slack. Powell seemingly could be planting the seed of slower growth and tough times ahead.
Powell does not believe the economy is in a recession now. The economy does appear, however, to be teetering on the edge of a recession. The months ahead could see growth slow even further and that may fuel market volatility. The Fed is expected to raise rates by another ,50% or more in September. The Fed could go with its third straight .75-point hike, although such a scenario seems unlikely at this point. Given today’s rate hike, the dollar bulls may no longer maintain positive upside. Any dollar weakness could boost gold further in the weeks ahead.
For the time being, the $1700 and $1800 levels remain technical keys. The bears may again take control of the market with a close below the $1700 level. The bulls could garner more buying attention if able to produce a close above $1800.