The markets are placing a 96.3 percent chance the 2016 Fed rate increase will occur in December. Following the increased expectations, the gold price has declined.
30 November, AtoZForex – According to Jerome Powell, the Federal Reserve (Fed) Governor, the conditions for the rate increase have become stronger. As the recent data indicates that the economy is growing, with the number of jobs going up and the inflation rate increasing to 2 percent.
Jerome Powell comments on the 2016 Fed rate increase
Jerome Powell believes that the Fed’s gradual increase in rates has benefited the economy. However, he alerted that moving at a too slow pace could result in the Federal Open Market Committee (FOMC) suddenly tightening policy to avoid outreaching its objectives.
The U.S. economy is close to reaching the targets of full employment as well as the two percent inflation rate set by the Fed. But there are still difficulties that the economy may encounter in the medium and long term.
“Our aging population will mean slower growth, all else held equal. If living standards are to continue to rise, we need policies that will support productivity and allow our dynamic economy to generate widespread gains in prosperity”.
Comments of Jerome Powell echoed the minutes of the FMOC’s meeting on the 1st and the 2nd of November. At that meeting, the central bank decided to keep the rates unchanged but signaled that the case for the hike strengthened. Thereby, it is widely anticipated that the Fed will increase its benchmark federal funds rate following the meeting on the 13th-14th of December. The market projects a 96.3 percent chance that the Fed will hike rates next month.
Gold declines as the chances for the rate hike increase
As markets expect to see the rate hike in December, the gold price came under pressure once again. The New York gold for December delivery fell 0.4% to US$1188 an ounce.
AtoZForex trading analyst comments that traders could expect further downside movement if the price breaks out and closes below the 1167 monthly support level. Any further downside movement would mean longer term support at 1059.93 and 953.3 monthly levels. Should the Fed keep rates unchanged, traders can expect a sharp rally and a possible break above the 1327.89 level. Hence, traders should trade with caution.
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