Gold price pares losses as Fed's Powell talks inflation uncertainty, stresses it's 'premature' to raise rates

(Kitco News) Gold pared some of its losses, rising from daily lows as Federal Reserve Chair Jerome Powell talked about inflation uncertainty but stressed that it is "premature to raise rates today."

"Inflation has come in higher than expected. Bottlenecks have been more persistent and are on track to persist well into next year. I don't think we are behind the curve. The policy is well-positioned to address the range of plausible outcomes. It will be premature to raise rates today. We want to see the labor market heal more," Powell said at a conference that followed the Fed's interest rate announcement.

The Fed Chair admitted that high inflation is concerning and will likely last well into next year while still maintaining the word transitory.

"Inflation in the medium-term … is our job. The level of inflation that we have right now is not consistent with price stability," he said. "For us, transitory has meant that it won't leave behind permanent or persistently higher inflation … We acknowledge uncertainty around transitory."

Powell also noted that the word "transitory" has attracted a lot of attention and could be distracting from the Fed's overall message.

"We try to focus on what we can control. The focus of this meeting is on tapering and not raising rates. There's still ground to cover to reach maximum employment," he described. "Our baseline expectation is that supply shortages and elevated inflation will persist well into next year. As bottlenecks resolve … inflation should move down by the second or third quarter of next year."

Powell sounded sympathetic when addressing concerns over rising prices, putting the blame on supply constraints. "We understand the difficulties high inflation poses. Our tools cannot ease supply constraints. We continue to believe our economy adjusts to supply-demand imbalances and inflation adjusts to 2%. But the timing is highly uncertain," he said.

The Fed Chair is also not ruling out achieving full employment by the middle of next year, which could open the door to interest rate hikes.

Earlier on Wednesday, the Fed announced that it would start to wind down its monthly asset purchases in November at a pace of $15 billion per month, citing substantial further progress made.

"The Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities," the Fed's statement said. "Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month."

The Fed added that it is prepared to adjust that pace based on changes in the economic outlook. "The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

The central bank also expressed concern over inflation. "Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors," the central bank said in a statement.

Gold rose around $15 from its daily lows in response to Powell's comments that showed that the Fed was not in a rush to raise rates. At the time of writing, December Comex gold futures were trading at $1,773.70, down 0.88% on the day.

By Anna Golubova

For Kitco News

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