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Published: Sat, September 24, 2016
Economy | By Melissa Porter

Gold Prices Gain Following Fed Decision


Near-term risks to the economic outlook appear roughly balanced.

Through the post-recession recovery the Fed has hemmed and hawed about raising rates from levels that reflect a country in economic crisis. The regional bank presidents from Kansas City, Cleveland and Boston had wanted to boost rates now. "There has been considerable dissention among FOMC participants for some time, but chair Yellen has managed to forge a consensus with no more than one dissent at any meeting since December 2014". They foresee only two rate hikes next year and three in 2018, down from three each year.

That knocked the dollar nearly across the board as investors reduced their expectations for USA interest rates. But that likelihood has faded as recent economic reports have turned out weaker than expected.

Federal Reserve Chairwoman Janet Yellen outlines the Fed's strategy on the economy during a news conference following Wednesday's announce ment.

It may have been hard for the Fed to bite the bullet and raise rates given the highly charged upcoming presidential election.

The data was released at the same time as the Fed met.

Last December, the Fed signaled that four rate increases were likely in 2016, but that was scaled back in March due to a global growth slowdown, financial market volatility and concerns about tepid USA inflation.

In June, the Fed had forecast that the unemployment rate would fall to 4.7 percent by the October-December quarter. On a weekly basis, it was up 4 percent, snapping seven straight weeks of losses. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

Meanwhile, most markets across Asia rallied yesterday on the Fed's decision and the prospect of only modest rises to come. Energy and materials companies had some of the biggest gains. Look to see whether the central bank scales back that expectation.

"She's obviously political and doing what Obama wants her to do, and I know that's not supposed to be the way it is, Trump said".

The uncertainty swirling around the Fed isn't just about when it will next raise its benchmark interest rate.

"It's still a follow through from yesterday's price action for the broader markets, not just the TSX.", said Sid Mokhtari, director, institutional equity research, CIBC World Markets.

Spot gold was little changed at $1,336.65 an ounce after having made an earlier two-week high.

The Fed kept interest rates unchanged Wednesday, a was largely expected, but hinted at a possible rate hike before year's end.

The central bank will hold two more policy meetings before the end of the year: one in November and one in mid-December.

"It's hard to get too excited about the dollar when the Fed is lowering its projected path of rate hikes into the future".

SM Prime, the day's most actively traded stock, gained 1.08 percent while Metrobank, Security Bank, SMIC and AEV also rose by over 1 percent. Don't expect any firm answers.

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