Comment :
The Federal Reserve’s decision to skip a hike again even while the US economy continues to show unexpected strength and inflation slows sluggishly, tells us that the central bank is in a tricky spot. The recent rise in market-based interest rates have made financial conditions very restrictive, possibly doing some of the Fed’s work for them. Additionally, the full impact of their tightening is yet to be felt, making it appropriate to pause. Additional rate hikes at this juncture could result in overtightening and seriously damage the ‘soft landing’ that the Fed is aiming for. However, the Fed cannot declare tightening over with growth this strong and inflation still above target, which keeps the door open for another hike. The ‘higher for longer’ stance should keep markets on edge. Gold prices are currently supported by geopolitical tensions in the Middle East and prospects of the Fed easing policy in 2024.
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