14 December 2023
The Fed Starts Talking About Rate Cuts
Breaking news. The Federal Reserve started talking about interest rate cuts for the first time today during this monetary policy cycle. At the conclusion of the Fed’s two-day meeting Wednesday, the central bank held interest rates steady as expected at 5.25%-5.50%. This marked the third consecutive Fed meeting where the central bank stood pat, suggesting the interest rate cycle may have peaked.
Gold surged after the meeting, which revealed that Fed officials expected three interest rate cuts in 2024. Gold traded as high as $2,016.80, up $37.10 this afternoon.
All eyes were focused on the Fed’s latest economic projections, known as the “dot plot,” which signaled a drop in the fed funds rate to 4.6% by the end of next year, which is lower than the September forecast of 5.1%. The lower interest rate forecast is supportive for gold and opens the door to a new rising price cycle for precious metals ahead.
Fed changed their tune on inflation
The Fed also changed the way it discussed inflation at the end of today’s meeting. For the past six meetings, the Fed has said “Inflation remains elevated.” Today, that sentence was revised to “Inflation has eased over the past year but remains elevated.”
It’s a subtle change, but in Fed-speak it says volumes.
Inflation has come down but…
Inflation has come down from its peak at over 9% during this economic cycle, but still remains above the Fed’s 2% target. Earlier this week, we saw fresh inflation numbers. The annualized Consumer Price Index rose 3.1% in November over the last 12 months. Drilling down, the monthly CPI figure rose 0.1%, which showed that inflation was slightly hotter than expected, as economists forecast for unchanged reading.
The future is bright for gold
Investors bought gold after today’s Fed meeting and the current uptrend has farther to go. Recent forecasts from major Wall Street players call for new record highs in gold in 2024. JP Morgan expects a series of interest rate cuts between the second half 2024 and the first half of 2025 which they say could lift gold to $2,300 an ounce. Bank of America is even more positive on gold. They say, if the Fed does begin to slash interest rates in 2024, that gold could climb to an impressive $2,400 an ounce next year.
As the year comes to a close, it’s a good time to consider, do you own enough gold?
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