(Kitco News) - The gold market is enjoying a modest relief rally after the Federal Reserve left interest rates unchanged; however, the central bank continues to maintain a solid tightening bias.
As expected, the Federal Reserve left the federal funds rate in its current target range between 3.50% and 3.75%. However, the statement showed that three committee members voted for a 25-basis-point rate hike at this meeting.
The gold market jumped $40 in its initial reaction to the central bank's latest monetary policy decision. Although prices have come off their session highs, they remain elevated. Spot gold last traded at $4,073.60 an ounce, up more than 1% on the day.
Although the Federal Reserve is maintaining its tightening bias, analysts had been expecting a relief rally in gold because expectations for a rate hike at this meeting had increased significantly in recent weeks. Ahead of the decision, markets were pricing in roughly a 30% chance that the Federal Reserve would raise interest rates.
Beyond maintaining support for higher interest rates, the central bank, as part of its new policy under Fed Chair Kevin Warsh, provided no forward guidance.
The central bank also struck an optimistic tone regarding the health of the U.S. economy and the inflation environment.
“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” the central bank said in its monetary policy statement. “Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.”
