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Federal Reserve Meeting and Gold Price Outlook

- The Federal Reserve is holding its two-day meeting starting today Tuesday and will conclude on Wednesday. Most market participants expect the Fed to maintain its current interest rates. The CME's FedWatch tool shows a 94.6% chance that rates will stay steady and a 5.4% chance of a 0.25% rate cut, which would bring the benchmark rate to between 5% and 5.25%.

- Following the meeting, the Fed will issue a statement, and Chairman Jerome Powell will hold a press conference. The markets indicate high confidence that interest rates will remain unchanged, with little chance of a rate cut. Since July 2023, the Fed has kept rates steady between 5.25% and 5.50% due to recent inflationary pressures.

Investors are paying close attention to the Fed's plans for managing its balance sheet, which is expected to receive significant focus.

According to author Rahul Kumar, the Fed influences monetary policy through interest rates and its balance sheet management. Quantitative easing (QE) injects liquidity into the financial system by buying large quantities of assets, while quantitative tightening (QT) reduces the balance sheet by allowing assets to mature without reinvestment. Since June 2022, the Fed has been reducing its balance sheet. Powell's recent comments suggest a potential shift in strategy, with an announcement expected in May about slowing down the pace of balance sheet reduction.

The Fed has been steadily reducing assets from its balance sheet, which peaked in 2022. Decisions on quantitative tightening are made separately from the Fed's decisions on interest rates.

Important
Gold prices may rise if the Fed signals a more dovish approach by slowing down quantitative tightening (QT) or cutting interest rates. This can increase liquidity and lower interest rates, making gold more attractive as a safe-haven asset in times of economic uncertainty.

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