(Kitco News) - The gold market could struggle to attract new bullish momentum as the Federal Reserve might not maintain its aggressive easing measures, according to the minutes of last month’s monetary policy meeting.
Last month, the Federal Reserve began a new easing cycle by cutting interest rates by 50 basis points. The central bank also signaled that it expects interest rates to fall to 3% by 2026. However, the minutes highlight a more nuanced discussion around the shift in monetary policy.
According to the minutes, some committee members preferred a smaller cut of only 25 basis points.
“Several participants noted that a 25-basis-point reduction would align with a gradual path of policy normalization, allowing policymakers time to assess the degree of policy restrictiveness as the economy evolved. A few participants also added that a 25-basis-point move could signal a more predictable path of policy normalization,” the minutes stated. “A few participants remarked that the overall path of policy normalization, rather than the specific amount of initial easing at this meeting, would be more important in determining the degree of policy restriction.”
The gold market is not reacting significantly to the minutes, as prices remain under pressure. December gold futures last traded at $2,627.10 an ounce, down 0.31% for the day.
Although the Federal Reserve has embarked on a new easing cycle, Federal Reserve Chair Jerome Powell has suggested a preference for a more gradual pace of easing. He has described the rate cuts as a “recalibration” of monetary policy.
The minutes reflected Powell’s sentiment.
“In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation moving down sustainably to 2 percent and the economy near maximum employment, it would likely be appropriate to move toward a more neutral policy stance over time. Participants emphasized that it was important to communicate that the recalibration of policy at this meeting should not be interpreted as evidence of a less favorable economic outlook or as a signal that the pace of policy easing would be more rapid than participants' assessments of the appropriate path,” the minutes said.
Last week, markets were forced to dramatically adjust their expectations following better-than-expected September employment numbers. Before the nonfarm payrolls data, markets saw a more than 30% chance of another 50-basis-point cut. However, markets are now pricing in a 24% chance of no cut next month.
Examining economic conditions, the monetary policy committee continues to see inflation falling as the economy stabilizes.
“Almost all participants saw the upside risks to the inflation outlook as having diminished, while downside risks to employment were perceived as having increased. As a result, those participants now assessed the risks to achieving the Committee's dual-mandate goals as being roughly balanced. However, a couple of participants did not perceive an increased risk of a significant further weakening in labor market conditions,” the minutes noted.
While the Fed may be hesitant to sharply lower interest rates, economists expect rates to continue to fall. Some market analysts have suggested that, looking beyond individual rate cuts, the overall downward trend should continue to support gold prices.
Paul Ashworth, Chief North America Economist at Capital Economics, noted that September’s employment report helped alleviate some concerns about a slowing labor market.
“In the aftermath of that release, futures markets have fully priced out another 50-basis-point cut at the upcoming FOMC meeting early next month. With upside risks to inflation increasing slightly and few signs of labor market risks becoming a reality, we agree. We expect the Fed to adopt a more measured pace of loosening—cutting rates by 25 basis points at each meeting until the target rate falls to 3.00% to 3.25%,” he said.
