Fed Officials Express Divergent Views
Chicago Fed President Austan Goolsbee stated that he was “confused” by the market’s reaction to the Fed’s meeting last week, while Cleveland Fed President Loretta Mester clarified that the Fed was not considering rate cuts but was assessing how long policy needed to remain tight in order to rein in inflation and bring it back to its 2% target.
These comments appeared to conflict with the dovish outlook provided by the Fed during its final policy meeting of the year. The central bank stated that it would halt any further interest rate hikes and would consider potential cuts in 2024. Following the Fed meeting, gold prices surged past the $2,000 per ounce level and have since maintained their position.
While investors anticipated early rate cuts, Fed Fund futures prices are indicating only a 63% chance of a 25 basis point rate cut in March 2024. Gold is expected to benefit from a lower interest rate environment since higher rates increase the opportunity cost of investing in the yellow metal.
In other news, copper prices experienced an increase on Tuesday, driven by expectations of additional monetary stimulus in China. This anticipation follows a massive liquidity injection by the People’s Bank of China (PBOC) last week, totaling over $100 billion worth of yuan liquidity into the economy to support growth.
By March expiration, copper futures rose by 0.3% to reach $3.8595 per pound. The red metal witnessed strong gains in recent sessions as it tracked the dollar’s weakness. Additionally, the PBOC is expected to maintain record low benchmark loan prime rates later this week, further supporting copper prices.