23.09.202112:29 Forex Analysis & Reviews: Gold suffered losses after the Fed meeting

The gold market saw a reversal of earlier gains, as Fed Chairman Jerome Powell spoke of a "gradual" reduction while downplaying the impact of China and the Evergrande problems on the US market.

According to the Committee, purchases of treasury securities last December 2020 occurred at least $ 80 billion per month. Since then, the economy has made progress. If progress continues, the committee believes that it is possible to reduce the pace of asset purchases. This is stated by the Central Bank.

The US central bank is still trying to tighten its monetary policy. According to the latest economic forecasts, the regulator sees the first possible interest rate hike in 2022.

While explaining the Fed's position at a press conference following the Fed's announcement, Powell indicated that it will be a "very gradual decline" that could end in the middle of next year. He added that the Central Bank can speed up or slow down the reduction process. Thus, markets shouldn't expect an increase in rates while the Fed is still cutting.

The reduction really depends on the significant further progress made by the US economy. And if the economy continues to grow in line with expectations, the Fed may continue to cut at the next meeting.

The head of the Fed was also asked about the problem of China's debt on Evergrande, which provoked shock in the markets earlier this week. Jerome Powell replied that the situation with Evergrande is very specific for China, which does not call for concern. In this case, one should worry about the fact that this will affect global financial circumstances through confidence channels.

When asked about stock trading for Fed officials, Powell said that there was a need to make adjustments after the news about the investment activities of Reserve Bank presidents Robert Kaplan and Eric Rosengren. He also noted that it is reasonable for Fed officials not to own the same assets that the Fed buys.

The Fed's view of current economic activity has not changed since the summer, while further strengthening is forecast.

Despite the fact that the Federal Reserve System postponed its plans to reduce QE at this meeting, some analysts note that the forecasts of the interest rate committee may keep gold below $ 1,800 per ounce.

The Committee believes that in 2022, interest rates will rise to 0.3%, compared to the previous estimate of 0.1%.

For 2023, the average estimate of interest rates is 1% compared to the June forecast of 0.6%. And as for 2024, the Central Bank sees an interest rate at 1.8%.

The Central Bank Committee lowered its growth expectations for the rest of 2021.

According to updated economic forecasts, the Fed is forecasting 5.9% growth in US gross domestic product this year, compared with June forecasts of 7%. Next year's economic growth was revised upward to 3.8% compared to the previous forecast of 3.3%. According to the assumption, the economy will grow by 2.5% in 2023. By 2024, the Central Bank believes that GDP growth will be 2%. But at the same time, high inflationary pressure will remain and will continue to rise in 2022. In 2023, the Fed expects that inflation will remain at the level of 2.2%.

In response to the Fed Chairman's comments, gold suffered some losses as markets interpreted Jerome Powell's comments as optimistic when it came to the US economy.