After an impressive jump to nearly $2,030 an ounce at 1:20 p.m. EST, the price of gold pulled back on Wednesday (May 3) following the decision by the US Federal Reserve to raise rates by 25 basis points at its May meeting.
In a unanimous decision, the Federal Reserve raised the benchmark US central bank overnight interest rate to a range of 5 percent to 5.25 percent. This represents the Fed’s 10th consecutive hike.
Regulators now indicate they will closely monitor inflation risks and are encouraged by job gains in the past month.
The Fed will monitor future events for policy plans
In a press conference following the release of the new decision, Fed Chairman Jerome Powell said the committee will monitor future events in relation to its future decisions.
“In light of these uncertain headwinds coupled with the monetary policy tightening we have implemented, our future policy actions will depend on how events unfold.
“In determining the extent to which additional policy tightening may be appropriate to return inflation to 2 percent over time, the Committee will take into account cumulative monetary policy tightening, the lags with which monetary policy affects the economic activity and inflation, and economic and economic policy. financial developments,” he said.
Following a sharp rally that reached a price point value of nearly $2,030 shortly before the Fed’s announcement, the price of gold per ounce began to decline during the day.
As of 3:00 pm EST, gold was trading at $2,020.75 an ounce, up 0.3 percent year to date.
Asked if the market and investors should interpret today’s decision as meaning the Fed will hold off on a rate hike for its next meeting, Powell said that “the decision to pause was not made today.”
Instead, the president once again emphasized that the committee will monitor future events in making its decisions.
In previous statements, the Fed had indicated that it would continue to anticipate the use of rate increases as a way to combat inflation. As pundits begin to ponder the Fed’s next steps, signs point to some easing on future rate hikes.
However, the Fed still noted that inflation remains “elevated.”
“The most important thing is how they convey the potential for a pause down the road,” Collin Martin, fixed income strategist at Charles Schwab, told CNBC. “How do they do that while probably leaving the door a bit open? It will be a balancing act between suggesting there is a pause on the cards, but still depending on the incoming data should inflation pick up in the future.”
Fed comments on the current banking crisis
Chairman Powell opened his press conference with a banking update following the recent banking crisis in the US.
Powell said after a review In addition to events related to the Silicon Valley Bank (SVB) crisis, the Fed should work to prevent events like this in the future.
The review, led by Vice President of Supervision Michael S. Barr, criticized the Federal Reserve’s lack of action and understanding of the full scope of vulnerabilities associated with SVB.
“I agree and support your recommendations to address our supervisory rules and practices, and I am confident they will lead to a stronger and more resilient banking system,” Powell said in a statement.
Asked if the potential for bank M&A could increase or decrease stability in the banking market, Powell said having various sizes of banks is a positive and excellent system overall.
Powell said that buys of First Republic bank’s assets by JP Morgan was broadly positive, although policy dictates it’s probably not in the best interest of larger banks to grow further.
The Fed’s next steps will be closely monitored as Chairman Powell has not committed to what lies ahead for regulators. However, as expectations of a pause in rate hikes continue to rise, investors will need to monitor the impact of upcoming financial events and how they might dictate what the Fed is likely to do next.
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Securities Disclosure: I, Bryan McGovern, do not have any direct investment interest in any of the companies mentioned in this article.
Editorial Disclosure: Investing News Network does not guarantee the accuracy or completeness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the views of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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