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

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

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

Minutes of the meeting also said the officials were concerned about any “misperception” revealed in the financial markets around their actions.

“Participants noted that because monetary policy worked more importantly through financial markets, unwarranted easing of financial conditions, particularly if driven by a public misperception of the committee’s reaction function , would complicate the committee’s efforts to restore price stability,” said the minutes of the Federal Open Market Committee’s Dec. 13-14 meeting.

At the last meeting of the year, the Fed slowed to a 50 basis point hike but remained very firm in its goal of bringing inflation down to 2%. Fed Chairman Jerome Powell also warned markets that rates are not at a sufficiently restrictive level and will need to stay higher for longer.

In the minutes, officials noted that a slowing in the pace of increases does not mean an easing in financial conditions.

A number of participants stressed that it would be important to make it clear that a slowdown in the pace of rate hikes did not signal a weakening of the Committee’s commitment to achieving its price stability objective. or a judgment that inflation was already persistent. way down,” the minutes read.

Fed Chairman Jerome Powell told reporters after the December FOMC meeting that the longer the U.S. central bank needs to keep rates high, the narrower the runway for a soft landing. “I don’t think anyone knows if we’re going to have a recession or not. And if we do, whether it’s deep or not, it’s just not knowable,” Powell said.

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

The minutes revealed that officials acknowledge the “significant progress” made after rates climbed 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 heaviest burdens on the most vulnerable groups of the population,” the minutes said. Most participants stressed the need to retain flexibility and optionality when moving the policy towards a more restrictive stance.

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

Fed officials also aligned themselves with Powell’s general message, stressing that a restrictive policy stance should be maintained for “some time.”

Following the release of the Fed meeting minutes, gold remained largely unchanged, with February Comex Gold Futures last traded at $1,856.70 an ounce, up 0.57% on the day. Earlier in the session, gold hit a new six-month high at $1,871.30, but has since pared those gains.

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