Powell and Co. hiked again. And the FOMC removed the important phrase about “accommodative” stance. What now for gold?
Yesterday, the FOMC published the monetary policy statement from its latest meeting that took place on September 25-26. In line with the expectations, the US central bank raised the federal funds rate by 25 basis points to the target range of 2 to 2.25 percent:
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.
In related actions, the Board of Governors also hiked the primary credit rate from 2.50 to 2.75 percent and the interest rate paid on required and excess reserve balances from 1.95 to 2.20 percent. The upward move in the federal funds rate was the eight lift since 2015.
Besides the hikes, the statement was barely changed from the July/August version. The overview of the economy is the same as previously. The only, although important, modification is the drop of the longstanding phrase that the stance of Fed’s monetary policy “remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.” The change in language is perfectly justified as inflation is near 2 percent, while the labor market remains healthy (not counting, of course, the low labor force participation after the crisis). And the federal funds rate is approaching its neutral level, which is considered to be neither accommodative nor restrictive.
What does that modification imply for the gold market? Well, the decision to remove phrase about “accommodative” stance seems to be hawkish at the first glance. The Fed drops the dovish language, after all. Indeed, the change may signal that the Fed is moving closer to a restrictive policy setting. It would not be positive for the price of the yellow metal.
