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Gold price holds above $1,850 as Fed minutes reveal concern over 'misperception' and 'unwarranted' easing

(Kitco News) The gold market managed to hold on to some of its daily gains after the release of minutes from the Federal Reserve’s December meeting, with prices trading above the $1,850 an ounce level.

At the December meeting, Fed officials confirmed their commitment to curb inflation and warned against “unwarranted” easing of financial conditions.

Minutes of the meeting also revealed that officials were concerned about any “misconceptions” in financial markets about their actions.

“Attendees noted that because monetary policy has worked so important through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee’s reaction function, would complicate the committee’s effort to restore price stability,” the minutes said. of the Federal Open Market Committee meeting from December 13th to 14th.

During the last meeting of the year, the Fed eased to a 0.5 percentage point increase, but remained very firm on its target of bringing inflation down to 2%. Fed Chairman Jerome Powell has also warned markets that rates are not at a sufficiently restrictive level and will have to remain higher for longer.

In the minutes, officials noted that a slower pace of interest rate hikes does not mean an easing of financial conditions.

“A number of participants stressed that it would be important to communicate clearly that a slowdown in the pace of rate hikes was not an indication of either a weakening of the Committee’s resolve to achieve its price stability target or a judgment that inflation was already at a persistent plateau. way down”, the minutes read.

Fed Chair Jerome Powell told reporters after the December FOMC meeting that the longer the US central bank needs to hold rates higher, the narrower the track for a soft landing becomes. “I don’t think anyone knows whether we’re going to have a recession or not. And if we do, whether it’s going to be deep or not, you just don’t know,” Powell said.

The latest median forecast for 2023 shows rates could rise to 5.1%, with the Fed also expecting real GDP to reach 0.5% in 2023 and PCE inflation to slow to 3.1% in 2023.

The minutes revealed that officials recognize the “significant progress” made after rates rose by 425 basis points in 2022 and are concerned about the potential risk of excessive tightening.

“The lagged cumulative effect of policy tightening could end up being more restrictive than necessary to bring inflation down to 2% and lead to an unnecessary reduction in economic activity, potentially placing the greatest burdens on the most vulnerable groups of the population” , said the report. minutes said. “Most participants emphasized the need to maintain flexibility and optionality when changing the policy to a more restrictive stance.”

Another highlight was the minutes stating that “no participant anticipated that it would be appropriate to start reducing the federal funds rate target in 2023”.

Fed officials also echoed Powell’s overall message, pointing out that a tight policy stance would need to be maintained for “some time”.

After the release of the Fed meeting minutes, gold was broadly unchanged, with Comex February gold futures trading at $1,856.70 an ounce, up 0.57% on the day. Earlier in the session, gold hit a new six-month high of $1,871.30 but has since pared those gains.

24 hour live gold chart [Kitco Inc.]

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