Fed Policy Still Supportive for Gold Prices
During its sixth monetary policy meeting held on 20th and 21st of September, the Federal Market Open committee of the US Federal Reserve left the key policy rates unchanged. The overnight lending rate was kept in the range of 0.25% to 0.50% whereas the discount rate (the primary credit rate), was kept as it is at 1.00%. This was a critical event for those active in commodities trading, as it ultimately suggests that the Fed is putting itself in a position create a supportive framework for gold prices and silver prices in the months ahead.
At the meeting, the decision was quite divided with a 7 to 3 vote against raising interest rates in this meeting. The implementation of the policy will be done through open market operations to maintain the rates in the target range of 0.25% to 0.50% by the Open Market Desk at the Federal Reserve Bank of New York.
Chart View: US Economic Data
The decision was quite divided with a 7 to 3 vote against raising interest rates in this meeting. The implementation of the policy will be done through open market operations to maintain the rates in the target range of 0.25% to 0.50% by the Open Market Desk at the Federal Reserve Bank of New York. It should be noted that the Fed considers three major economic variables to decide the appropriate monetary policy: GDP growth, unemployment rate and Inflation based on Personal Consumption expenditure Index (PCE Inflation).
Although the economic indicators pointed towards a steady labor market growth and reasonable GDP growth, inflation is still way below the long-term target of 2%. The decline in oil prices has had an effect on keeping inflation low. Consumer spending showed an upward path in August but fixed investment by corporates has remained soft creating pressure on GDP growth as well.
Considering these mixed data points, the Fed decided to wait for some more time to get further confirmation from the economic variables. The fed also had global growth concerns and financial market volatility at the back of its mind in keeping the status quo.
The rate has stayed in this range since December 2015, when the Fed had decided it was time to stop the economy from overheating. It had indicated four possible rate hikes in 2016 but there has been none so far. The Fed has been in a cautious stance for the whole year, but indicated a possible rate hike later this year based on steadily improving employment growth data.
The Fed holds eight such planned meetings during a calendar year and further non-planned meetings as needed. There are two more meetings scheduled this year on November 1st and December 13th. It will be interesting to see Fed’s comments in the November meeting as it is scheduled just before the presidential elections.