Today, the Federal Reserve will announce its latest monetary-policy decision. What should investors expect from the June FOMC meeting?

All eyes are on the Federal Reserve. Although an interest rate hike announcement is unlikely, the FOMC members are expected to give some rate hike clues. The June meeting is of special interest, since it will be followed by an official statement, which will include new economic projections, and a press conference held by Fed Chair Janet Yellen. What to expect from the June FOMC meeting?

First, the interest rate hike is very unlikely at this meeting, however, the Fed could lay further groundwork for an interest-rate hike later this year. Some analysts believe that the U.S. central bank will signal its future course of action in order to avoid a strong market reaction with the move. Some ambiguous hints are possible, but the FOMC members will want to remain data-dependent. Given that data is mixed and the Fed has no idea where the data is headed on a month-by-month basis, it may be too early to make a confident hint.

Second, the tone of the statement may be slightly more upbeat than in April due to more positive data on the U.S. economy in the second quarter. However, the Fed is expected to downgrade its outlook for the economy somewhat due to the very weak first quarter and no significant rebound in the second quarter. In other words, what they were saying in March was definitely too hawkish.

Therefore, it is difficult to predict the overall effect on the gold market. On the one hand, the FOMC members will point out the positive run of U.S. data, which would send a message that the rate hike is coming in September, which would be negative for the gold market, since the market rather believes that the first hike will be later this year or even next year. On the other hand, the Fed’s economic projections and the “Dot Plot” will be probably downgraded somewhat, which should be positive for the gold market. The more gradual the monetary tightening, the better for the gold prices.

To sum up, the main event is the FOMC meeting tonight. Investors are not expecting the FOMC to raise interest rates at this meeting, but are looking for rate hike clues. The effect on the gold market is uncertain, since the Fed may sketch a slightly brighter picture of the economy than in the last meeting, while the economic projections and the predictions of the federal funds rate by the FOMC participants are expected to be more dovish.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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