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(Kitco News) – Gold prices have moved into positive territory as the Federal Reserve makes its biggest rate hike in 22 years.
As expected, the US central bank raised interest rates by 50 basis points, pushing the Fed Funds rate to a range between 0.75% and 1%. In addition, as expected, the Federal Reserve will reduce its balance sheet by a total of $47.5 billion.
The gold market is seeing a positive move in the initial reaction to the latest monetary policy statement. June gold futures last traded at $1,875.60 an ounce, up 0.28% on the day.
The Federal Reserve adopted an optimistic tone in its monetary policy statement although it noted that economic uncertainty remains elevated due to Russia’s invasion of Ukraine. The US central bank also said it was looking beyond the 1.4% decline in GDP seen in the first quarter of 2022.
“Although overall economic activity declined slightly in the first quarter, household spending and business fixed investment remained strong. Jobs gains have been robust in recent months and the unemployment rate has fallen significantly,” the Federal Reserve said.
The Federal Reserve also noted that interest rates will continue to rise through 2022. Currently, markets are seeing nearly a 100% chance of a 75 basis point move in June.
“With an appropriate firming of the monetary policy stance, the Committee expects inflation to return to its 2% target and the labor market to remain strong. In support of these targets, the Committee has decided to raise the target range for the federal funds rate to 3/4 to 1% and anticipates that continued increases in the target range will be appropriate,” the Federal Reserve said.
On the balance sheet, the Federal Reserve said that starting in June, it would reduce its cash holdings by $30 and reduce its exposure to mortgage-backed securities by $17.5 billion. The liquidation of the balance sheet will double in three months to reach 95 billion dollars.
“Central bankers want to convince Americans that while there’s not much they can do to ease price pressures this year, they shouldn’t expect high inflation to persist for years to come. , and a more aggressive hike from the get-go is part of that message. As a result, another 50 basis point move seems likely at the next meeting, but the statement hinted at nothing more than “increases.” continue,” said Avery Shenfeld, senior economist at CIBC.
However, Shenfeld added that he expects the Federal Reserve to move closer to 2%, that will slow the pace of rate hikes.
Paul Ashworth, chief U.S. economist at Capital Economics, said he expects to see two more 50 basis point moves before the Federal Reserve slows its pace.
“Overall, nothing here changes our view that the Fed will continue its 50 basis point hikes in its next two policy meetings, before lackluster real economic growth and moderating inflation set in. persuade her to return to $25 billion hikes in the last three policy meetings this year; raising the federal funds target range to between 2.50% and 2.75% by the end of the year,” he said. -he declares.
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