The Federal Reserve Chair, Jerome Powell, explained the central bank’s recent decision to pause on rate increases. Powell suggested that markets should not refer to this pause as a skip, stating that more increases would still be appropriate. He added that ‘nearly all’ Federal Open Market Committee participants saw more rate increases as necessary.
The Fed’s Projections
The latest dot plot projections suggest that the Fed sees rates climbing by at least 50 basis points this year. However, Powell highlighted that these projections are unreliable.
Powell’s Views on Rate Increases
Powell suggested that the pace of rate increases is separate from the ultimate rate level. He recommended moderating the rate hikes as we get closer to the destination. He added that ‘it may make sense for rates to move higher, but at a more moderate pace.’
Powell stated that the Federal Reserve would only consider policy loosening in two years when inflation comes down significantly. He added that inflation has not really decreased and the Fed will continue to keep at it.
Gold had a mixed reaction to Powell’s comments and remained relatively flat on the day with August Comex gold futures last at $1,958.60.