Gold Prices At Session Highs As Fed Strikes Dovish Tone
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(Kitco News) - Gold prices are back in positive territory after the Federal Reserve sent another dovish signal to markets, lowering its growth forecast and signaling no rates hikes in 2019.
As expected the U.S. central bank left interest rates unchanged with its current range between 2.25% and 2.50%; however, markets are paying a little more attention to lower growth and interest rate projections for the year.
"In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes," the central bank said in its monetary policy statement.
Gold prices are pushing to session highs as the Fed's average interest rate projection calls for no rate hike this year, down from its previous forecast of two. April gold futures trading in solidly negative territory ahead of the report has jumped higher, last trading at $1,309 an ounce, up 0.19% on the day.
Looking at the Federal Reserves' balance sheet reduction program, the central bank said that it looks to end the runoff in September.
Avery Shenfeld, senior economist at CIBC Capital Markets, said that the Fed has gone as dovish as it could go as it sees only one rate hike in the next two years.
“We were looking for one final hike from the Fed this year (and a cut in 2020 to reverse that), but the Fed now seems less inclined to deliver an overshoot of neutral this year,” he said. “While the street is still a step ahead of the Fed in pricing in odds of an ease as the next move, the larger than expected swing in the dot plot forecast will be constructive for fixed income today, and bearish for the USD.”
The following is a recap of the Federal Reserve's economic projections.
In the latest interest rate projections, also known as the dot plots, the central bank's median forecast is for interest rates to be around 2.4% in 2019, down from December's forecast of 2.9%. In the long-term, the central bank sees interest rates at 2.8%, unchanged from December's forecast.
Looking at growth, the Federal Reserve expects U.S. gross domestic product is expected to grow by 2.1%, in 2019, down from December's forecast of 2.3%; for next year, the central bank sees economic growth at 19%, down from December's projection of 2.0%. Growth for 2021 remained unchanged at 1.8%.
The committee also sees a little more weakness in the labor market with the unemployment rate rising to 3.7% this year, up from December's forecast of 3.5%. The unemployment rate is expected to rise to 3.8% next year, up from December's forecast of 3.6%. For 2021, the unemployment rate is expected to rise to 3.9%, up from the previous estimate of 3.8%.
The Federal Reserve also sees slightly lower headline inflation pressures with the Personal Consumption Expenditures Index rising 1.8% this year, down from the previous estimate of 1.9%. The central bank sees inflation holding around 2% the next two years, down slightly from December's estimate of 2.1%.
Core inflation expectations, which strip out volatile food and energy prices, are expected to hold around 2% for the next three years, unchanged from the previous forecast.