Gold Price Analysis: XAU/USD sees muted reaction as Fed holds policy settings steady

Spot gold (XAU/USD) prices have seen a very muted initial reaction to the release of the latest FOMC monetary policy decision and continue to trade just under the $1850 mark, with the price action still for now capped by the precious metal’s 200-day moving average, which sits at $1847.79. At present, gold prices are down a modest 0.3% or around $6 on the day, weighed by the stronger US dollar amid a broad deterioration in risk appetite. Focus now turns to the post-meeting press conference with FOMC Chairman Jerome Powell at 19:30GMT.

Fed policy settings on hold

As expected, the FOMC held rates at 0.0-0.25% and reiterated that this is where rates would stay until inflation runs moderately above 2% for some time, so that inflation averages 2% over time and longer-term inflation expectations remain well-anchored at 2%. Meanwhile, the Fed maintained the pace of their monthly asset purchases at $80B in treasuries and $40B in mortgage-backed securities and reiterated that purchases would continue at this pace until “substantial further progress” had been made towards the bank’s maximum employment and price stability goals. The Fed repeated that it remains committed to using its full range of tools to support the economy and that it remains prepared to adjust its policy settings as appropriate if risks emerge that could impede the attainment of its employment and price stability goals. The vote in favour of holding its policy-setting steady was unanimous.

On the economy, the Fed repeated that the pace of economic activity and employment had moderated in recent months, but, seemingly in acknowledgment of the recently observed weakening in economic momentum at the end of Q4 2020/early January 2021, said that noted that weakness is mostly concentrated in sectors most adversely impacted by the pandemic. The path forwards for the economy will depend significantly on the pandemic, including progress on vaccinations, said the bank. The public health crisis continues to weigh on economic activity, the bank added, and still poses considerable risks to the outlook. Finally, on inflation, the Fed noted that weaker demand and earlier declines in oil prices was still holding down consumer inflation.