No agreement on inflation outlook?
The debate about the path of rates was closely linked to the inflation outlook. The doves believe that the low inflation could remain soft. However, they were in the minority, as the FOMC members generally viewed the medium-term outlook for inflation as little changed. The majority of them continued to “expect inflation to gradually return to the Committee’s 2 percent longer-run objective.”
Indeed, “the staff projected that inflation would be very close to the Committee's 2% objective in 2019 and at that objective in 2020.” And “the risks to the projection for inflation also were seen as balanced.”
So much for low inflation as the reason for a more dovish Fed in the near future. The opposite is actually more probable, given all the personnel changes in the composition of the FOMC.
The minutes from the latest FOMC meeting were rather hawkish. The U.S. dollar increased in a response, while the price of gold declined, as one can see in the chart below.
Gold prices over the last three days.
The FOMC members are still seeking a gradual rise in the U.S. interest rates, despite the internal division over the subdued inflation. In 2018, the biggest skeptics in such approach won’t vote, so we expect a more hawkish Fed. It should be a tailwind for gold. However, the first meeting with the new composition will tell us more. Stay tuned!