(Kitco News) - The gold market continues to trade below initial resistance at $3,350 an ounce as the Federal Reserve tries to extend the clock, saying it needs more time to evaluate the health of the U.S. labor market and the trajectory of inflation, according to the minutes from the July monetary policy meeting.
Although two Federal Reserve committee members voted to lower interest rates during the July meeting, the minutes show broad support for the central bank’s neutral monetary policy stance, as the threat of inflation looms larger than slowing momentum in the U.S. labor market.
“Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment. A majority of participants judged the upside risk to inflation as the greater of these two risks, while several participants viewed the two risks as roughly balanced, and a couple of participants considered the downside risk to employment the more salient risk,” the minutes said.
The gold market is not seeing much reaction to the minutes, which continue to highlight a hesitant central bank. Spot gold last traded at $3,343.60 an ounce, up 0.89% on the day.
The tone of the minutes has done nothing to shift expectations for easing next month. According to the CME FedWatch Tool, markets see an 82% chance of a rate cut in September.
Although September’s rate cut is all but priced in, the Federal Reserve’s hesitant stance could dampen expectations for aggressive rate cuts through the rest of the year.
“Some participants stressed that the issue of the persistence of tariff effects on inflation would depend importantly on the stance of monetary policy. Several participants commented that the current target range for the federal funds rate may not be far above its neutral level; among the considerations cited in support of this assessment was the likelihood that broader financial conditions were either neutral or supportive of stronger economic activity,” the minutes said.
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, said that he expects the U.S. central bank to cut rates in September; however, it could be a close call.
“The Fed meeting minutes clearly show why they didn’t cut rates at the last meeting – because the majority of officials thought the risk of higher inflation outweighed the risk of higher unemployment – but the far more important question is how they weigh the risks at the next meeting,” he said in a note. “In order for the Fed to cut in September – which we believe they will, unless there is another CPI or PPI disappointment before then – enough of the committee will need to weigh the unemployment risk as greater than the risk of persistent inflation.”
Markets will get further clues on the Federal Reserve’s monetary policy on Friday during Jerome Powell’s speech at the annual central bank symposium at Jackson Hole, Wyoming.
“Chair Powell is likely to keep his cards close to his vest, emphasize that the Fed cares very much about its dual mandate and explain that they are data dependent,” said Zaccarelli.
