Gold prices down after hawkish Fed minutes flag disconnect between FOMC and market rate expectations next year
NEW YORK (February 19) The gold market continues to trade in negative territory after the Federal Reserve reinforced its recent hawkish tone due to stubborn inflation pressures, according to the minutes from the January 28-28 monetary policy meeting.
Following its first meeting of 2025, the Federal Reserve held rates steady while pulling back the depth and imminence of further rate cuts.
“In considering the expected path of the federal funds rate, the manager noted that the modal policy rate path implied by options prices had not changed appreciably on net over the intermeeting period and was broadly consistent with a single quarter-point lowering of the target range for the federal funds rate taking place during 2025,” the minutes stated.
As recently as September, the central bank had forecasted four rate hikes in 2025.
“The average rate path implied by futures prices was also little changed and was above the corresponding median rates in the December 2024 Summary of Economic Projections,” they continued. “The modal path implied by the Open Market Desk's Survey of Market Expectations shifted up somewhat over the intermeeting period, with respondents generally judging that policy rate reductions would occur later than previously assessed, and was broadly consistent with market-implied paths at horizons up to early 2026.”
“Beyond that period, however, the survey-based path was notably below the market-implied path,” they added. “This discrepancy likely partly reflected positive market risk premiums as well as survey biases.”
Although FOMC members acknowledged that inflation pressures have eased over the past year – and may even be better than they appear – the minutes showed that the committee remains concerned about prices.
“A number of participants remarked that current readings of 12-month inflation were boosted by relatively high inflation readings in the first quarter of last year, and several participants noted that cumulative inflation over the past 3, 6, or 9 months showed greater progress than 12‑month measures,” the minutes noted. “Most participants commented that month-over-month inflation readings in November and December had exhibited notable progress toward the Committee's goal of price stability, including in some key subcategories. Many participants, however, emphasized that additional evidence of continued disinflation would be needed to support the view that inflation was returning sustainably to 2 percent.”
The minutes also showed that the central bank is adamant about waiting for more improvement on the inflation front before considering any further rate reductions.
“In discussing the outlook for monetary policy, participants observed that the Committee was well positioned to take time to assess the evolving outlook for economic activity, the labor market, and inflation, with the vast majority pointing to a still-restrictive policy stance,” the minutes said. “Participants indicated that, provided the economy remained near maximum employment, they would want to see further progress on inflation before making additional adjustments to the target range for the federal funds rate. Participants noted that policy decisions were not on a preset course and were conditional on the evolution of the economy, the economic outlook, and the balance of risks.”
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