At its FOMC meeting on Wednesday, March 22, the US Federal Reserve increased the Fed Funds Rate a quarter of a percent to a target range of 4.75%-5.00%, in line with market expectations, raising the base interest rate at which banks lend to each other.
Whilst this would have normally been expected to be bearish for the Gold price, it had already been priced in by markets as a base case scenario.
The Fed’s Summary of Economic Projections (SEP), published at the same time as the decision, however, showed a lower-than-previous future rate hike trajectory in the dot plot. The Fed now forecasts a terminal rate of only 5.10%, just above the current range, and it was this that began pushing Gold price higher.
In addition, the Chairman of the Federal Reserve, Jerome Powell, stated in the press conference after the meeting that it was possible the Fed might not need to raise rates as much as expected, because the credit crunch caused by the banking crisis would do the work for them. This further drove Gold higher.
"Possible tightening in credit conditions may mean monetary tightening has less work to do," said Powell.
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