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Gold Prices Stick in the Range: Undeterred by Rate Hike Fears

Gold Prices Stick in the Range: Undeterred by Rate Hike Fears

The Federal Reserve said the economy's continued growth might convince it to raise its benchmark interest rate soon, according to minutes from its January policy meeting released Wednesday, even as it acknowledged that the ambitious policies proposed by the Trump administration could have unforeseen effects on the USA economy.

The central bank economists state the decision to keep the funds rate steady comes after the economy did not meet the Fed's goal of 2 percent inflation set last December.

Other markets: Asian markets mostly rose (http://www.marketwatch.com/story/asian-stocks-edge-up-ahead-of-fed-minutes-2017-02-21) with the Hong Kong Hang Seng Index up 1%.

Still, many of them said "it might be appropriate to raise the ... rate again fairly soon" if the economy continued to improve as expected, according to minutes of the Jan 31-Feb.

What it means: As interest rates normalize and the economic expansion matures, the Fed expects to stop reinvesting the proceeds of maturing bonds and mortgage debt, a step that would begin to shrink the huge amount of liquidity the central bank forced into the economy by buying the securities after the 2008 financial crisis. However, consumer spending for energy services declined markedly, reflecting unseasonably warm weather.

"A few participants noted that continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting, would allow the committee greater flexibility in responding to subsequent changes in economic conditions", the minutes said.

Fed officials also emphasized the uncertainty surrounding the Trump administration's policies.

That statement will add to rising expectations the FOMC might increase the benchmark rate at the March 14-15 meeting. Sentiment indicators are also up on the expectation that President Donald Trump will boost growth through fiscal measures and deregulation.

The broad-based S&P 500 had dropped 0.3 percent to 2,358.39, while the tech-rich Nasdaq Composite Index fell 0.3 percent to 5,848.65. Interest-rate increases, meanwhile, tend to strengthen the dollar, which can make USA exports costlier to buyers and hurt American manufacturers.

Both of these policies, said Yellen, could produce drags on the U.S. economy and would factor into the decisions regarding monetary policy for the Fed as their effect became clearer. In the January statement the FOMC repeated that reinvestments would continue until rate normalization is "well under way".

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