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Gold price jumps as Fed’s Powell talks chance of recession and restrictive rates

(Kitco News) Gold erased its initial Fed-induced losses, jumping more than 1% on the day. Prices reacted to Federal Reserve Chair Jerome Powell’s comments on recession and peak rates following a third consecutive 75-basis-point hike Wednesday.

December Comex gold futures neared $1,700 an ounce as prices jumped more than $20 on the day, last trading at $1,692 an ounce.

Commenting on aggressive rate hikes, Powell said a period of below-trend growth is very likely. “This is something we need to have,” along with softer labor market conditions, he said.

“No one knows if this process will lead to a recession or how significant that recession will be. That is going to depend on how quickly price pressures come down … and whether we get more labor supply,” Powell added. “The chances of a soft landing are likely to diminish to the extent that policy has to be more restrictive.”

But he also pointed out that failure to restore price stability would translate into even “greater pain later on.”

The big takeaway from Powell’s press conference was the expectation of additional 125 basis points worth of increases this year, which could translate into another 75 bps hike in November and a 50 bps increase in December. But that depends on the incoming data, with decisions set to be made meeting by meeting.

“We should move our policy to a restrictive enough level that will move inflation down to 2%,” Powell said.

The fed funds rate could go up to 4.4% at the end of this year and then rise to 4.6% in 2023, according to Wednesday’s announcement. If this level is “restrictive enough” and inflation starts decelerating to the Fed’s 2% goal, the US central bank might slow down.

“We have raised rates by three percentage points his year. At some point, as the stance of monetary policy tightens further, it will become appropriate to slow,” Powell told reporters.

To read more about the Fed’s interest rate announcement, the dot plot and the updated economic projections, click here.

Live 24 hours gold chart [Kitco Inc.]

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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