Gold rallied on Wednesday after investors deemed the statements of Jerome Powell as not hawkish. This made prices achieve new records, offsetting the losses in the past days.
What Powell said yesterday was that data in the economy, such as inflation and employment, justify their decisions on monetary policy. He explained that the risk of constantly higher inflation is now greater, so the central bank has to speed up tapering.
Powell added that by the end of the year, the unemployment rate will fall to 3.5%, while inflation will exceed 2% next year. Price increases will also spread to broader goods and services, but they will be very sensitive to risks.
These statements provoked traders to liquidate short positions, resulting in a 2,700-pip gold rally in just a couple of hours.
Before the press conference, the Fed already announced that it would double the rate of tapering to $ 30 billion a month. This change will complete the Fed's bond purchase program by early 2022.
The central bank also said they expect interest rates to rise to 1.6% in 2023 and 2.1% by 2024. Both are higher than their previous forecasts of 1.0% and 1.8%, respectively.
The reason was the slightly slower growth prospects over the next few years, in part due to the recovery from the coronavirus pandemic.
But they revised economic growth for next year to 4.0%, up from the previous forecast of 3.8%. They also said the economy will widen by 2.2% in 2023 and increase by 2.0% in 2024.
The Fed stressed though that even if outlook is positive, the situation with coronavirus remains worrying.