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(Kitco News) - The gold market is holding firm as the Federal Reserve raised interest rates again but provided little forward guidance on the future of its monetary policy.
As widely expected, the Federal Reserve raised interest rates by 25 basis points, moving the Fed Funds rate to a range between 5.25% and 5.50%. U.S. interest rates are now at a 22-year high. However, analysts note that the latest monetary policy statement was essentially unchanged from last month's meeting as it continues to focus on bringing inflation down to its 2% target.
"In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the monetary policy statement said.
The gold market is not seeing much reaction to the Federal Reserve's decision as it holds near session highs. August gold futures last traded at $1,971.80 an ounce, up 0.40% on the day.
As well as keeping an eye on the inflation threat, the U.S. central bank struck an optimistic tone as it sees the economy expanding at a moderate pace.
"The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks," the statement said.
Adam Button, chief currency strategist at Forexlive.com, noted that it is interesting that the Federal Reserve hasn't adjusted its opinion on inflation as it cooled sharply in June, rising 3%, its slowest pace of growth in two years.
"The implicit signal here is that the plan is to continue hiking at every other meeting and the market is pricing in a 16% chance of a hike in September and a 40% chance in November," he said.
Despite little change in the Federal Reserve’s current stance, some economists continue to expect the central bank to ease up on its hawkish rhetoric; however, it will take more data to confirm a shift in its stance.
“We suspect that further signs of a significant easing in the monthly core CPI numbers for July and August will ultimately persuade the Fed to hold fire, particularly if employment gains continue to trend lower too. Furthermore, despite the “higher for longer” rhetoric favoured by officials, we expect the Fed to begin cutting rate in the first half of next year, as that disinflation gathers pace,” said Paul Ashworth, chief North America economist at Capital Economics in a note.
