Market participants, investors, and traders are waiting for the end of the FOMC's September meeting. They will pay close attention to the Federal Reserve's latest policy statement and recently updated interest rate forecasts.
The statement explains one of the most important questions: will the Fed clarify when it will begin to reduce monthly asset purchases worth $ 120 billion? Currently, the Federal Reserve System buys $ 80 billion worth of US debt and $ 40 billion worth of mortgage-backed securities every month.
During the banking crisis and the subsequent recession of 2009, the Fed accumulated approximately $ 4.5 trillion in assets on the balance sheet. This happened at the end of their "quantitative easing". After that, they started liquidating assets and lowered their balance sheet to $ 3.75 trillion before they felt that further cuts would damage the economic recovery. This new round of QE has led to an exponential increase in their balance sheet, and as of September 15, the Federal Reserve has accumulated $ 8.4 trillion in assets.
Analysts are doubtful about whether the Fed will announce the beginning of a reduction in asset purchases. Most of them currently believe that the announcement will be made in November, and the reduction may begin as early as December 2021. However, the secret lies in the details, in the fact that the announcement of the start date of the decline is only a component that market participants need. It is also interesting how quickly they will shrink and how much they will reduce their purchases per month.
The recent statements of Fed's senior officials have diverged as to when to begin the process of ending quantitative easing. A unanimous agreement will be difficult if they come to a consensus and make an announcement since this is a start date that will lead to bearish market sentiment for gold prices.
In turn, if neither the Fed's statement nor Chairman Powell's press conference, which will take place about half an hour after the end of the September FOMC meeting, is not announced, it will be interpreted as calmer behavior. This will create a bullish impulse for gold's growth.
The publication of updated interest rate forecasts is also important. Powell will not only make it clear when the Fed will begin to normalize rates, but will also point out the level of disagreement between Fed officials. Finally, this will be the first time that market participants will get clarity about the interest rate forecasts for 2024. It is possible to find out the Fed's intentions, but eliminating some of the uncertainty that currently exists will increase volatility in many financial markets, as analysts gather information about changes from the previous FOMC statement, disassembling the nuances and wording of their current economic prospects.