Gold prices jump as Powell talks about the possibility of a recession and restricted rates

(Kitco News) Gold erased initial losses caused by the Federal Reserve, jumping more than 1% on the day. Prices reacted to Federal Reserve Chair Jerome Powell’s comments on recession and peak prices after the third straight rise of 75 basis points on Wednesday.

December Comex gold futures neared $1,700 an ounce as prices jumped more than $20 a day, last trading at $1,692 an ounce.

Commenting on the sharp increases in interest rates, Powell said that a period of growth below trend is highly likely. “This is something we need to have” along with soft labor market conditions, he said.

No one knows if this process will lead to a recession or how significant that recession will be. That will depend on how quickly price pressures go down…and whether we get more labor supply, Powell added. “The chances of a soft landing will likely diminish to the point where policy should be more restrictive.”

But he also noted that failure to restore price stability would translate into “more pain later”.

The big result from Powell’s press conference was an expectation of an additional 125 basis points in value increases this year, which could translate into another 75 basis points increase in November and a 50 basis point increase in December. But this depends on the data received, with decisions being made by the meeting.

“We have to get our policy to a level that is constrained enough to take inflation to 2%,” Powell said.

The federal funds rate could rise to 4.4% at the end of this year and then rise to 4.6% in 2023, according to Wednesday’s announcement. If this level is “restricted enough” and inflation begins to slow to the Fed’s 2% target, the US central bank could slow down.

“We raised interest rates by three percentage points in his year. At some point, as the monetary policy stance further tightens, it would be appropriate to slow down,” Powell told reporters.

To read more about the Fed rate announcement, the dot plot and the updated economic outlook, click here.

24 hour gold chart [Kitco Inc.]

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