Gold prices up more than 1% on the day above $2,000 as the Fed signals rate cuts are coming in 2024

(Kitco News) - The gold market is pushing back above $2,000 as the Federal Reserve looks to loosen monetary policy in 2024 as the economy and inflation ease.

(Kitco News) - The gold market is pushing back above $2,000 as the Federal Reserve looks to loosen monetary policy in 2024 as the economy and inflation ease.

As expected, the Federal Reserve kept interest rates within a range between 5.25% and 5.50%. However, the central bank highlighted slowing growth and easing inflation, a slight shift in its previous narrative.

"Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated," the central bank said in its monetary policy statement.

Along with its more neutral outlook, the Federal Reserve also signaled that it expects to cut interest rates more than it anticipated in the summer.

The latest economic projections, also known as the "dot plot," indicate that the central bank sees the Federal Funds rate at 4.6% by the end of 2024, down from September's forecast of 5.1%.

According to the CME FedWatch Tool, markets see interest rates closer to 4% by the end of next year.

Adam Button noted that the Fed has moved closer to market expectations.

"There's a bit of a dance that goes on between the Fed and the market. The market always pushes harder than the Fed. At times, the Fed pulls back on the reigns to steer the market, but by moving towards the market this time, it's a nod that the market is moving in the right direction," he said in a note.

The dovish tone in the statement and the updated economic projections, which highlighted cuts next year, are creating some solid momentum in gold. February gold futures last traded at $2,013.80 an ounce, up 1% on the day.

The Federal Reserve also lowered its rate expectations for 2025 as it sees the Fed fund rate at 3.6%, down from September's forecast of 3.9%. Long-term interest rates remained unchanged at 2.5%.

Updated economic projections

The central bank is looking to cut interest rates as it sees slightly slower growth next year. According to the economic projections, the central bank sees GDP growing 1.4% next year, down from the previous estimate of 1.5%. Economic growth for 2025 was left unchanged at 1.8%. The economy is expected to grow 1.9% in 2026, up a tick from September's projection of 1.8%.

Slower growth is expected to cool consumer price pressures, bringing inflation closer to the central bank's 2% target. The Federal Reserve sees core inflation, which strips out volatile food and energy prices, rising 2.4% this year compared to June's estimate of 2.6%. Core inflation is projected to rise 2.2% in 2025, up from the previous estimate of 2.3%. Inflation is expected to increase by 2% in 2026, unchanged from September's forecast.

Overall, consumer prices are expected to rise 2.4% in 2024, down slightly from September's estimate of 2.5%. Inflation is expected to weaken further in 2025, rising by 2.1%, down from the previous estimate of 2.2%. Headline inflation is expected to grow 2% by 2026, unchanged from the previous estimate.

The Federal Reserve is looking for continued resilience in the labor market, with the unemployment rate hovering around 4.1% for the next three years, unchanged from September's estimate.

Neils Christensen

Wednesday December 13, 2023 14:10