The Fed Increased Rates Again — What Happened to the Gold Price?

A soft landing strategy is beginning to look like a possibility as the US Federal Reserve delivered what economists expect to be the last interest rate hike of the cycle on Wednesday (July 26), with a 0.25 point raise from 5.25 percent to 5.5 percent.

In an attempt to lead the economy out of a full recession, the Fed confirmed another interest rate hike, resulting in the highest point for borrowing costs in 22 years.

This marks the 11th interest rate hike performed by the Fed since March 2022.

Chair Powell comments on new hike

Fed Chair Jerome Powell said the board remains committed to its 2 percent inflation target.

Answering questions for the media, Powell said there’s no decisions on future meetings yet but said that the board will remain open to rate hikes depending on the performance of the economy.

Some things the board wants to see are moderate growth, as well as labor, unemployment and supply and demand reaching a better balance.

Powell was asked about optimism for a potential soft landing event in the economy based on current projections from top banks in Wall Street.

“We will be able to achieve inflation moving back down to our target without the kind of significant downturn that results in high levels of job losses that we’ve seen in many past instances of tightening that look like ours,” Powell said.

However the chair clarified optimism is not the word he would use to describe the current situation in fighting inflation but admitted he sees a pathway to a path of disinflation.

“It’s a long way from assured and we have a lot left to go to see that happen,” he said. Staff for the Fed are no longer forecasting a recession, Powell added in his answer.

When asked why the board did not continue with its rate hike pause despite a recent positive Consumer Price Index (CPI) report, Powell said the board doesn’t want to be shaken from its targets based on individual events.

The chair explained that the previous board meeting projections from the members still had rate hikes as a possibility in future meetings.

“We’re going to be careful about taking too much signal from a single reading,” he said.

Leading up to the next Fed meeting, the board will get additional job reports and other economical benchmarks to review how the economy is performing following its actions. Powell said these reports will help make the decision for the board.

Gold and silver on the move following Fed meeting

The leading precious metals enjoyed a partial boost in value during Wednesday’s trading session.

Leading up to the decision by the Fed, gold and silver saw volatility in their price charts, but they began to climb following it.

The price per ounce of gold was around US$1,965 yesterday, but it moved up to cross the US$1,972 mark multiple times during today’s trading day.

Between 2:30 and 2:40 EDT, when Powell took the stage to answer questions after the decision, gold jumped from US$1,968.35 to US$1,977.31, falling shy of the US$1,980 mark but falling shy.

As of 3:19 p.m. EDT, gold stood at a price per ounce of 1,973.34 — a 0.44 percent uptick for the day.

Meanwhile gold’s sibling silver saw similar volatility during Wednesday’s trading session.

The metal sat at a price point of US$24.91 per ounce, representing a 0.99 percent increase in value.

Experts share perspective on Fed actions

Kathy Jones, chief fixed income strategist at Charles Schwab, told CNBC she expects the Fed to follow this hike with a pause period. “But no promises. They can’t give up the option,” Jones said.

While this could be the last hike from the Fed for a while, economists quoted by the AP expect the effects of these increases to remain present for consumers into 2024.

Christopher Waller, a key member of the Fed’s board, recently said he needs to see “further evidence of smaller price increases before he would be sure inflation is slowing,” per a report from Fortune.

The board member cautioned against getting burned by momentary positive results in the fight against inflation, only for the effects of these to rear their head again.

Investor takeaway

Another rate increase by the Fed is being met with more optimism than previous ones, as expectations shift towards a soft landing action and the potential to avoid the full impact of a recession.

Attention now moves forward as experts anticipate whether the Fed will call it quits on the rate hikes for the foreseeable future after this latest increase or if the tactic will continue to be deployed.

The next Fed meeting will take place in September.

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

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