Gold prices trekked higher Thursday as investors were emboldened by a Federal Reserve policy statement that they read as hinting at a central bank hesitant to raise rates too quickly. He said the Fed “continues to have an undefined timetable for the next rate hike in the normalization process”.
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Sanghavi pointed out, however, that the odds of a September rate hike have marginally increased, and Fed will also keep an eye on worldwide economic affairs, apart from own domestic economy. McBride said a rate hike would not happen in November because of the USA election, and unless the Fed raises its key rate in September, the only remaining window this year will be in December.
Among other things, the FOMC said that “job gains were strong in June following weak growth in May”.
“The Committee now expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen”, the committee stated.
Dr. Stephen Miller, a UNLV economics professor and director of the Center for Business and Economic Research, said he had mixed feelings about the prospect of the Fed raising rates. The lone dissenter was Kansas City Fed President Esther George, who preferred to raise the target range for the federal funds rate to ½ to ¾ percent.
It did say, however, that near-term risks to the US economic outlook had diminished, opening the door for a potential near-term hike in the eyes of many. On Friday, new numbers on America’s economic growth will be released, and next week the July jobs report will shed more light on the health of USA employment. But as 2016 began, intensified fears about China’s economy and a plunge in oil prices sent markets sinking and led the Fed to delay further action.
Now markets are waiting for more clarity on USA rate hike move when Fed Chair Janet Yellen speaks at Jackson Hole, Wyoming, on August 26. The central bank was also affected by Britain’s forthcoming vote on whether to leave the European Union, anticipation of which had rattled investors.
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According to Steven Ricchiuto, chief US economist at Mizuho Securities USA, continued job growth could tip the balance in favor of a rate hike – especially given that the committee believes the threats to economic growth are now lower. It has room to accelerate its rate increases if the economy were to heat up so much as to ignite high inflation. “Nevertheless, there was no indication that the committee anticipates that inflation will pick up in the near term, which leaves them enough slack to maintain a cautious approach to normalizing rates”.
