A unanimous Fed hike leaves gold's real policy rate at 17 basis points

Subtract the Fed's own inflation forecast from its own policy rate and most of the hike disappears. The midpoint of the new range is 3.875% ^[12]. The committee's median PCE projection is 3.7% ^[7]. The difference is 0.175 of a percentage point ^[13], so in real terms holding an asset that pays no coupon costs about a sixth of a point a year.

Chair Kevin Warsh said "inflation is too high and has been for too long" ^[5]. The document that carried the new range also carried the higher inflation forecast ^[7], and lifting both at once keeps the funds rate level with the inflation the Fed says it expects. The committee tightened the nominal rate and, on its own numbers, left the real one about where it was.

The price evidence is thinner than the two accounts suggest. Gold's $4,235 low and its roughly $4,340 recovery are $105 apart, or 2.5% ^[19], where the account describing them calls the bounce almost 2% ^[9]. The read that traders have been slow to reprice a tightening Fed rests on a price path, with no positioning data, futures open interest or fund flows in either piece. The first account attributes the recovery to easing Treasury yields and a pullback in oil ^[9], and says Middle East tension has kept energy markets jittery, which feeds inflation expectations ^[6].

A second hike would create under half a point of real carry ^[16]. The forecast is met and the range stops at 4.00%, leaving 0.30 of a point of real policy rate at the top of the band ^[14]. The forecast is met, one more hike lands, and the real rate reaches 0.425 ^[16]. Or inflation comes down faster than the funds rate, and the sums change sign for a holder.

I'd expect the $4,200-$4,350 band ^[11] to hold while the real policy rate stays under half a point, and the case against that sits inside the same projections: a committee that voted unanimously ^[3] and said it expects to move again ^[1] can raise the range faster than it revises its forecast. Take a full point off the median PCE projection with the range unchanged and the real policy rate is about 1.175 points ^[20], nearly seven times what the Fed produced this month ^[21].