Gold Prices Holding Gains As FOMC Signals More Rate Hikes In '19 & '20
(Kitco News)- Gold prices are holding on to daily gains as the Federal Reserve maintains its forecast that it will raise interest rates only three times this year, while signaling more rate hikes in 2019 and 2020
As widely expected, the U.S. central bank raised interestrates by 25 basis points, pushing the federal funds rate to a range between1.50% and 1.75%. However, most investorswere focused on the central bank’s interest rate projections, also referred to asthe “dot plots.”
The median average of the updated forecasts expects thatinterest rates will end the year around at 2.10%, unchanged from the December projections;however, rates are expected to increase to 2.9% next year and 3.4% by 2020, upfrom previous forecasts of 2.7% and 3.1% respectively
Gold prices were trading just down from session highs ahead of the Fed’s monetary policy announcement and have remained near those levels.April gold futures last traded at $1.322 an ounce, up 0.77% on the day.
Looking at the central bank’s monetary policy statement, theFed remains optimistic on the U.S. economy, saying that “economic activity wasbeen rising at a moderate pace.”
The central bank also reiterated that it remains optimistic that inflation will eventually push to its 2% target in the medium term.
“Near-term risks to the economic outlook appear roughlybalanced, but the Committee is monitoring inflation developments closely,” thecentral bank said in its statement.
Avery Shenfeld, senior economist at CIBC World Markets, said thatthe statement under the new leadership of Chairman Jerome Powell, did notprovide a “dramatically new message.”
“Markets will have to decide how scary it is to have one more hikeadded to the trajectory for 2019, but that should have been largely anticipatedgiven the added fiscal stimulus in the last budget bill,” he said.
Analysts at TD Securities said that while interest rates aregoing higher, the central bank is still maintaining a gradual trajectory.
“Despite higher2019, 2020 and long-run dots, this is still consistent with a gradual path of hikesof no more than 3 per year,” they said.
Recapping the Federal Reserve's economicprojections:
The Federal Reserveexpects the U.S. gross domestic product to grow by 2.7% in 2018, up fromDecember's forecast of 2.5%. Economic activity is projected to expand 2.4% in2019, up from December's estimates of 2.1%; finally, the economy is expected togrow 2.0% in 2020, unchanged from the previous forecast.
The committee sees furthergrowth in the labor market as the unemployment rate continues to fall. Themedia forecasts expect the unemployment rate to drop to 3.8% this year, downfrom December's projections of 3.9%. The rate is estimated to fall 3.6% nextyear, down from the previous forecast of 3.9%. The unemployment rate isprojected to remain at 3.6% in 2020, down from the previous estimate of 4.0%.
The central bank alsoforecasts tame inflation pressures throughout year. The projections showinflation rising 1.9% this year and 2.0% next year, unchanged from the previousforecast. Inflation is expected to tick up to 2.1% in 2020, up from theprevious estimate of 2.0%.
Coreinflation projections, which strip out volatile food and energy prices, wererelatively unchanged from the December estimates. The central bank expects coreinflation to rise 1.9% this year, and remain steady at 2.1% next year and in2020.
By Neils ChristensenFor Kitco News
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