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Gold and Silver's CPI Gains Fall As Fed Holds Rates

The US Federal Reserve announced on Wednesday (June 12) that it will hold its benchmark interest rate at 5.25 to 5.5 percent following its two-day Federal Open Market Committee (FOMC) meeting.

This marks the seventh time the central bank has maintained its policy since July 2023, when it last raised the rate.

The meeting occurred the same day as the release of May’s consumer price index (CPI) data by the Bureau of Labor Statistics (BLS). The CPI data indicated a 0 percent change month-over-month, down from April’s 0.3 percent increase over March. On a 12-month basis, CPI saw a 3.3 percent increase over last year, a slight decline from April’s 3.4 percent year-over-year gain.

Additionally, the FOMC meeting came just days after the Bureau released May’s jobs report numbers on June 7. In that release, the agency reported that employment remained strong adding 272,000 jobs in May, beating analysts’ predictions of 185,000.

The Federal Reserve opted to maintain its rate as it continues to wait for more data, saying it wanted more confidence that inflation was moving sustainably toward its target rate of 2 percent.

In his press conference, Fed Chairman Jerome Powell indicated that he was pleased that the data provided to the committee showed improvement after stalling during the first part of the year, but declined to say when rate cuts would be expected.

Citing the median projection for the Fed’s favored inflation measurement, the personal consumption expenditures (PCE), Powell said the expectation is it will fall to 2.6 percent this year, 2.3 percent next year, and 2.0 percent in 2026.

Powell said that while things have moved into better balance and there was modest progress, economic uncertainty remained. He added the central bank would remain attentive to inflation risks and would not move until there was more positive data to bolster its confidence.

“We know that reducing policy restraint too soon or too much could result in a reversal of the progress that we’ve seen on inflation. At the same time reducing policy restraint too late or too little could unduly weaken economic activity and employment,” he said.

Based on the FOMC participant assessments, Powell said projections for the federal funds rate would be 5.1 percent in 2024, 4.1 percent in 2025 and 3.1 percent in 2026. Powell was careful to add that these were just projections and not a committee plan or decision and would continue to make decisions meeting by meeting.

Markets were mixed following the news. While it dropped sharply in mid-day trading, the S&P Index ultimately saw a slight increase by the end of the trading day, closing up 45 points. The Nasdaq 100 also posted a gain, moving up 1.33 percent to close at 19,465 points, and the Dow Jones saw a small loss to close at 38,712.

Meanwhile, precious metals prices saw high volatility throughout the day. The gold price spiked as high as US$2,340 following the release of the CPI data, and neared that mark again this afternoon in the lead up to the Fed decision. The silver price followed the same pattern, and broke above US$30 during both upward swings. However, both precious metals fell back down on the news that rates would be held. As of 4:00 p.m. EDT, gold was trading at US$2,321.26 and silver was trading at US$29.62, which was still above their prices at the start of the day.

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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.


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