Fed Holds Rates at 3.75% to 4%; Gold Closes at $4,076.3
Key Facts
On October 28, the Federal Reserve kept its federal funds target range at 3.75% to 4.00% in a decision that was not unanimous. Lisa Cook and Beth Hammack voted against holding rates, preferring a quarter-percentage-point increase, according to the Fed statement. The move followed the Fed’s September rate hike, its first in nearly three years, according to Reuters. In its assessment of the economy, the Fed said activity was "expanding at a solid pace," but added that inflation "remains elevated." The decision thus kept the existing range in place while signaling clear disagreement within the committee over the appropriate move at that stage.
The description of economic activity in the October statement was stronger than the wording at the September meeting, shifting from "solid expansion" to "strong expansion," according to Reuters. At the same time, the Fed maintained its assessment that inflation remains elevated, placing the two judgments side by side in its policy stance. The Fed said that accumulating more information would help the committee determine the appropriate policy stance to ensure inflation returns to its 2% target in a timely manner. The wording shows that the decision tied the next move to what subsequent data reveal about the path of prices and activity. The Fed also announced that it would reduce the frequency of policy meetings starting the following year.
In metals markets, gold rose on Wednesday as the dollar weakened, according to Investing.com, which also linked the move to Fed Chair Kevin Warsh’s signal that financial conditions had tightened somewhat since the September decision. But trading before the decision saw a decline: spot gold fell 0.7% to $4,030.20 an ounce at 0602 GMT, after rising about 1% in the previous session. A Reuters report said inflation concerns tied to higher oil prices were weighing on the metal before the decision was announced. After the decision, spot gold rose 0.2% to $4,069.86 an ounce at 15:58 Eastern Time, while futures gained 0.8% to $4,084.15. EL7 closing data showed GCUSD at 4,076.3 on October 28, compared with 4,074.6 the previous day.
The post-decision moves extended beyond gold: the yield on 10-year U.S. Treasury notes rose 4.3 basis points to 5.036%, and the two-year yield gained 4 basis points to 4.777%, according to Reuters. Another report by the agency described spot gold as little changed after the decision, while Treasury yields continued to advance. In U.S. equities, the report said the indexes pared their gains slightly. Market estimates of the probability of a quarter-point rate hike at the December meeting also rose to 86% after the decision, from 78.3% on Tuesday. Reuters quoted a strategist as saying pressure could build for another hike in December, as inflation concerns persist.
On trade, the advance deficit in international trade in goods reached $134.9 billion in September, up 2.1% from August, when it was $132.1 billion, according to the U.S. Census Bureau. The monthly comparison puts the figure in the context of a widening deficit between the two periods, alongside the Fed’s assessment that activity was expanding at a strong pace. The bureau set November 27 as the next release date for advance international trade indicators and advance wholesale inventories. That date follows the data releases scheduled for the day after the rate decision. September’s figures remain part of the data used to track the direction of the U.S. economy.
Attention turns on October 29 to the September personal income and outlays report, scheduled for release at 8:30 a.m. Eastern Time and including the personal consumption expenditures price index, according to the Bureau of Economic Analysis calendar. The advance estimate of third-quarter gross domestic product was scheduled for release at the same time. The releases follow the Fed’s statement that more information would help it determine the appropriate policy stance to return inflation to its 2% target. The price report gives markets a fresh reading of the measure included in the income and outlays report, while the GDP estimate offers a reading on activity in the third quarter. At the Fed’s next meeting in December, market estimates of the probability of a rate hike rose to 86% after the October decision.