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Gold price looks past FOMC meeting minutes that show a divided Fed

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(Kitco News) The gold market was largely unchanged following the release of the Federal Reserve’s May meeting minutes, which showed central bank officials split on whether more rate hikes were needed.

Fed officials said they would be data-dependent going forward. "Participants generally expressed uncertainty about how much more policy tightening may be appropriate," the minutes from May 2-3 meeting stated. "Many participants focused on the need to retain optionality after this meeting."

According to the minutes, "some" participants saw inflation decelerating as "unacceptably slow," which could warrant more rate hikes. At the same time, "several" participants noted that if the economy continued to slow as expected, more policy tightening might not be needed.

"In light of the prominent risks to the Committee's objectives with respect to both maximum employment and price stability, participants generally noted the importance of closely monitoring incoming information and its implications for the economic outlook," the minutes said.

Overall, participants "generally agreed" that due to monetary policy's lagged effects and tighter credit conditions after the banking sector turmoil, the need for more rate hikes "had become less certain."

There were also some discussions around the debt ceiling situation, which remains unresolved, with the June 1 deadline just days away.

Not raising the $31.4 trillion debt limit in a timely manner risks "significant disruptions to the financial system and tighter financial conditions that weaken the economy," some participants noted.

At the May meeting, the Fed introduced its tenth consecutive rate increase, which brought the federal funds rate to a 5-5.25% range – the highest since mid-2007.

In just over a year, the Fed raised rates by 5%. The next monetary policy meeting is scheduled on June 13-14.

May's message included a "meaningful" change – a decision to take out the reference to "some additional policy firming may be appropriate," Fed Chair Jerome Powell told reporters after the meeting.

The Fed will now be driven by a combination of incoming data and credit conditions, Powell noted. "The assessment of the extent to which additional policy firming may be appropriate is going to be an ongoing one, meeting by meeting," he said.

Last week, Powell indicated that rates might not have to rise as much due to tighter credit conditions after the banking sector turmoil.

"The financial stability tools helped to calm conditions in the banking sector," Powell said at the Thomas Laubach Research Conference Friday. "Developments there, on the other hand, are contributing to tighter credit conditions … as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course, the extent of that is highly uncertain."

After the meeting minutes were released, markets were projecting a 73% chance of a rate pause at the June meeting and a 27% chance of a 25-basis-point hike, according to the CME FedWatchTool.

The gold market was essentially unchanged after the release of the FOMC meeting minutes, with June Comex gold futures ticking up to $1,965 an ounce, still down 0.48% on the day.

Live 24 hours gold chart [Kitco Inc.]

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