The price of gold has trimmed its earlier gains and experienced a retreat following the recent decision by the US Federal Reserve to keep interest rates unchanged. The move comes as the Federal Reserve, led by Chair Jerome Powell, pushes back against speculations of imminent rate cuts, contributing to increased volatility in the XAU/USD, currently fluctuating within the $2030 – $2040 range. Market participants are carefully analyzing Powell’s remarks for insights into the future trajectory of monetary policy.
Fed Chair Powell’s Comments on Rate Cuts
Federal Reserve Chair Jerome Powell expressed a cautious stance on rate cuts during the March meeting, contributing to a decline in gold prices. Powell suggested that policy rates may have peaked, acknowledging the possibility of rate cuts later in the year contingent upon economic developments. He emphasized the uncertainty in the economic outlook and stressed that decisions on rates would be made on a meeting-by-meeting basis. Powell clarified that no rate cuts were discussed during the meeting, highlighting the Federal Reserve’s reluctance to prematurely declare victory in the fight against inflation. Notably, Powell indicated that a rate cut in March is currently not on the table.
Monetary Policy Summary
During the monetary policy meeting, Federal Reserve officials unanimously voted to maintain unchanged interest rates. They underscored the appropriateness of reducing rates until there is greater confidence in inflation sustainably moving towards the 2% goal. The Federal Reserve noted an improving balance in the risks associated with achieving its dual mandate and reiterated the committee’s commitment to closely monitoring inflation risks.
In terms of the balance sheet reduction, the Federal Reserve affirmed its previously outlined plan. Additionally, the institution announced tighter restrictions on all Federal Reserve staff with access to confidential Federal Open Market Committee (FOMC) information.
Market Reaction
Following the release of this information, the yield on the US 10-year Treasury note saw a brief spike to 4%, subsequently retracting to around 3.97%. Simultaneously, the US Dollar Index (DXY) initially surged towards 103.50 before settling back to 103.35. The market remains attentive to further developments, particularly regarding the potential impact on gold prices in light of the Federal Reserve’s cautious stance and Powell’s commentary on the economic outlook.
