Gold Price Holds Gains As Fed Acknowledged Soft Inflation

Neww York (Nov 1)  Gold prices remain unchanged on the day as the Federal Reserve leaves interest rates unchanged, remaining optimistic on the U.S. economy.

The central bank left interest rates unchanged with in a range between 1.00% and 1.25%; in its monetary policy statement, the central bank said, “the labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions.”

However, according to some analysts, the Fed continues to remain concerned about inflation, noting that it is “soft,” a shift from their previous description of transitory effects impacting price pressures. However, the Fed continues to expect that inflation will pick up over time.

“Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely,” the central bank said in its statement.

Gold prices are relatively unchanged in reaction to the much anticipated monetary policy decision. December gold futures last traded at $1,276.80 an ounce, up 0.49% on the day.

Analysts were not expecting to see major market reaction to the Fed meeting, with markets pricing in a 1% chance of a rate hike. The markets are mostly focused on the December meeting, which will feature updated economic projections and a press conference with Fed Chair Janet Yellen. Markets are pricing in a 99% chance that interest rates will move higher in December.

Economists have described the latest monetary policy meeting as a “nonevent.”

“The Fed still looks to be eyeing a hike before the end of the year, but could only be so hawkish on a day it decided to keep rates on hold,” said Nick Exarhos, senior economist at CIBC World Markets. “The FOMC highlights that it continues to expect that growth will track a moderate pace with "gradual adjustments" in rates. All told, we still see a December hike coming, with disappointments on the inflation front more than offset by respectable results from GDP and the labour market.”

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