FOMC Expected to Stand Pat...Gold may react less than usual

Washington (Apr 28)  The U.S. Federal Open Market Committee is expected to largely stand pat when a two-day policy meeting wraps up on Wednesday.

If so, this could mean a limited reaction for prices of gold and other precious metals, at least compared to past meetings, analysts said. That would mean the metal mainly could make a big move if there were some sort of major surprise.

Central bankers begin a two-day meeting on Tuesday and conclude Wednesday, with a post-meeting statement scheduled for release at 2 p.m. EDT.

“They are probably going to stay the course,” said Phil Flynn, senior market analyst with Price Futures Group.

After a meeting wound up last month, the Fed scaled back the bond-buying program known as quantitative easing by another $10 billion, as expected. Members’ forecasts for the future of short-term interest rates were seen as more hawkish than anticipated, however, as was a comment from Fed Chair Janet Yellen at a press conference in which she suggested rates could start rising six months after the end of QE.

Since, however, Fed commentary has been deemed more dovish than initially thought after the last FOMC meeting, with Yellen characterizing the labor market as still soft. Also, minutes from the last meeting, released earlier this month, showed policy-makers feared that their collective interest-rate forecasts might overstate the pace at which eventual tightening likely would occur, assuming the economy recovers sufficiently.

“I don’t look for much (new) to happen at this meeting,” said Frank Lesh, broker and futures analyst with FuturePath Trading.

Economists and market participants look for the $10 billion-per-meeting tapering to continue.

“Communications from the FOMC suggest that asset purchases are on track to step down in a steady way between now and the end of the year unless there is some drastic change in activity and/or the outlook,” said a research note from Nomura’s economic team.

Most observers do not expect any major changes to the Fed statement or forward guidance.

Brown Brothers Harriman said the Fed meeting likely will be a “non-event,” with markets anticipating that the first hike in short-term rates likely is still more than a year away. Markets anticipate one of the few changes to the Fed statement might be that the U.S. economy has picked up after a slow start to the year, Lesh and BBH said.

“But it’s not enough to change or alter the course of the Fed at the moment,” Lesh said.