- Gold prices shoot higher in short-covering following dovish Fed outcome.
- US dollar in the backfoot, US yields undecided, awaiting Fed’s Powell’s presser.
The FOMC concludes a two-day meeting today which will be wrapped up shortly with the Federal Reserve chairman, Jerome Powell.
He is expected to conclude the central bank’s dovish hold with accompanying dovish remarks and cautious optimism for the economic recovery.
Meanwhile, gold prices are bid, higher by 0.61% at the time of writing at the highs of the day at $1,744.42/oz following the statement and interest rate decision.
As expected, there were no changes to the benchmark interest rate with the target standing at 0.0%-0.25% still. Interest rates on the excess reserves were also unchanged at 0.10%.
However, the median dot plot for 2023 is still showing no hike, in contrast to the rate market’s pricing which has turned the US dollar on its head.
”This essentially would reinforce the Fed’s Average Inflation Targetting Framework “” easing fears of an early exit as the Fed attempts to make-up for a decade of below-target inflation,” analysts at TD Securities explained.
Key notes from the statement
Fed repeats path of economy will depend significantly on the course of the virus, including progress on vaccinations.
Fed repeats to maintain the accommodative policy until inflation runs moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well-anchored at 2%.
Fed repeats to maintain the current fed funds rate until the labour market has reached maximum employment and inflation has risen to 2% and is on track to exceed that for some time.
Fed will continue to increase bond purchases by at least $80 bln/month of treasuries and $40 bln/month of MBS until ‘substantial further progress’ made on maximum employment and price stability goals.
Fed sees US GDP growing 6.5% in 2021 (prev 4.2%), 3.3% in 2022, 2.2% in 2023; median long-run forecast at 1.8% (prev 1.8%).
It was also recognized within the statement that ”following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently…’.
Fed’s Chair presser, watch live
Powell will now have to try to shift market expectations away from rising yields, otherwise, rates will likely gain traction again which has been weighing on gold prices of late as traders seek out yield within a risk-on playbook, neither of which is bullish for gold.
Following the statement, the 10-year US Treasury yield is undecided with a spike both to the upside and downside within the day’s range of between 1.6160% and 1.6870%.
Gold levels
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