His hand didn’t shake. Powell hiked interest rates at the first FOMC meeting with him as the Chair. But the key factor for the gold market is what he signaled about the future path of the federal funds rate. The crucial word is “three”, not “four”.

Another Meeting, Another Hike

In line with expectations, the FOMC acknowledged the improved economic outlook and raised interest rates again. The key paragraph of the recent monetary policy statement is as follows:

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

It was the sixth hike during the current Fed’s tightening cycle, but the stance of monetary policy remains accommodative. The federal funds rate remains historically low and the pace of increases is gradual, as the chart below shows.

Chart 1: Effective federal funds rate (green line, left axis, in %, monthly) and the price of gold (yellow line, right axis, London P.M. Fix, in $) from 1968 to 2018.

As in the previous cases, the Fed also raised the interest rate paid on required and excess reserve balances from 1.50 to 1.75 percent and the primary credit rate from 2 percent to 2.25 percent. The vote was unanimous and already priced in the gold prices, so it shouldn’t affect the precious metals market.

Fed Steepens Path, but Forecasts Only Three Hikes in 2018

The March FOMC projections were much more interesting. The members of the Committee raised their forecasts of GDP growth in 2018 and 2019, signaling confidence in the U.S. economy in the short run. They also projected a lower unemployment rate and slightly higher inflation in 2019 and 2020.