(Kitco News) -The Federal Open Market Committee (FOMC) left interest rates unchanged Wednesday within its range between 0.25% and 0.50%.
Not only is an interest rate increase on hold for June but according to interest rate projections, most members expect rates to remain below 1.0% for the rest of the year. The projections showed that six members favor leaving interest rates in its current range.
According to the statement, the central bank is slightly less optimistic on the labor market, but was more positive on economic growth.
The statement noted: “the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.”
The market is deeming the statement as more dovish as gold prices push higher, trading at $1,295 an ounce, up $6.90 just 15 minutes following the release of the statement.
George Gero, managing director with RBC Wealth Management, said in a note that he sees $1,300 in the cards for gold.
Kitco’s senior technical analyst Jim Wyckoff said following the dovish statement that the gold market has “solid” upside momentum and is expecting a test of resistance at $1,308 in the near-term.
Despite the shift in the dot plots, the central bank has left projections of future rate hikes unchanged for the rest of the year at 0.9%. However projections for 2017 and 2018 fell with the committee expecting to see an interest rate of 1.6% next year and 2.4% in two years, down from March’s projections of 1.9% and 3.0%, respectively.
According to the latest economic projections, the Fed expects U.S. gross domestic product to expand by 2.0% this year, down from March’s projection of 2.2%. For 2017, it expects to see economic growth of 2.0%, down from March’s forecast of 2.1%. For 2018, the central bank expects the U.S. economy to grow by 2.0%, unchanged from the previous estimate.
The Fed left its outlook on the labor market unchanged expecting the U.S. unemployment rate to hit 4.7%. For next year, the central bank is expecting an unemployment rate of 4.6%, unchanged from its previous forecast. For 2018, it expects the unemployment rate to come in at 4.6%, up from the previous forecast of 4.5%.
The Fed slightly raised its inflation outlook forecasting personal consumption expenditures (PCE) to come in at 1.4% this year, up from the previous forecast of 1.2%. The Fed's 2017 outlook see inflation at 1.9%, unchanged from the previous estimate. The central bank is expecting inflation to hit 2.0% by 2018, unchanged from March’s estimates.
Core inflation expectations, which strip out volatile food and energy prices, were relatively unchanged. For this year, the Fed expects core PCE to come in at 1.7%, up from March’s expectations of 1.6%. The 2017 estimate was raised to 1.9% from the previous forecast of 1.8%. The central bank is not expecting to hit its inflation target of 2.0% until 2018, unchanged from the previous outlook.
Yellen Keeps Hope Alive For July Rate Hike
Economic factors are bringing down the Fed’s long-term interest rate expectations, which Fed Chair Janet Yellen said is part of the “new normal.”
Although support for an interest rate hike seems less likely this year, Yellen left the door open for a move in July. In her press conference following the central bank’s monetary policy, she said that if the May employment report is eventually proved to be an aberration, and economic data strengthen then the central bank could raise interest rates.
She added that even the prospect of the U.S. presidential election wouldn’t be a factor for a summer rate hike, if the data warranted it.
“The committee will feel comfortable to move in the coming months if they deem it is appropriate,” she said.
By Neils Christensen of Kitco News; nchristensen@kitco.com
