What can we learn from it?
Investors also reduced their bond holdings in anticipation of a rate increase at the Fed's policy meeting next week.
The precious metal has fallen in five out of the last six sessions as expectations for the Federal Reserve to push ahead with a USA rate increase this month ramp up. Now, the Fed is poised to raise interest rates at its next meeting in March, and given the strong labor market and rebound in inflation it is entirely plausible that the Fed may raise rates several more times this year.
Yellen claimed that the Fed had wanted to tighten its policy more since 2014, but both unexpected economic developments and deeper reevaluations of structural trends affecting the US and global economies had prevented the USA central bank from adopting aggressive stance. "The Committee now assesses that the risks to the outlook are roughly balanced". Yellen pointed out that the Fed's employment goal has largely been met, while inflation has been rising toward the target.
NEW YORK, March 7 Wall Street stocks slipped on Tuesday, led by a decline in healthcare stocks after a tweet from U.S. President Donald Trump on the need to lower drug prices, while expectations the Federal Reserve will raise interest rates supported the U.S. dollar.
"Just two weeks ago I thought it was highly improbable that March was a possibility", said Greg Peters, a senior investment officer with PGIM Fixed Income. Coupled with strong growth outlooks in Europe and Asia, the spillovers from the global recovery will finally align to allow more sustained, stronger growth than we've seen in some time. At the beginning of March, financial markets were pricing on only about a 30 percent chance of a March hike.
In addition, with an elevated balance sheet, this gives the Fed the ability to push short term interest rates higher, without having a significant impact on longer term interest and mortgage rates and thereby maintaining a relatively accommodative policy in this tightening cycle. However, a lot depends on the message associated with the move. We at FxWirePro believe that these would be of lesser concern in 2017 even with three rate hikes if the fiscal authority under the newly elected government delivers on its fiscal promise. The Fed being behind the curve is a positive factor in the gold market.