By Barani Krishnan

Investing.com — Who will win — the ambitious Fed or the inflation monster?

Uncertainty pushed gold lower for the second week in a row, its largest weekly percentage decline since November.

Still, pressure on prices combined with concerns about fallout from the Russia-Ukraine war played up gold’s dual economic-political hedge to bring it back above the $1,900 support it briefly broke earlier in the week.

The most-active gold futures contract on New York’s Comex, , settled down $13.90, or 0.7%, at $1,929.30 an ounce. The benchmark gold futures contract suffered a 2.8% drop for the week. This is the largest loss since Nov. 19, 2001.

This week, the Federal Reserve approved a 25-basis points increase in its March 15-16 meeting. It was its first rate increase since March 2020’s outbreak of the Covid-19 crises. A number of FOMC meetings that the Federal Open Market Committee has scheduled this year meant there might be six rate increases.

Fed Gov. followed through on Wednesday’s rate decision. Christopher Waller — one of the more hawkish members of the FOMC — said U.S. economic data is “screaming” for bigger half percentage point rate hikes in coming months to stamp out inflation.

Waller’s comments, along with similar hawkish messages from other Fed representatives, helped the rebound Friday, thumbing down commodities denominated in the currency, including gold. The dollar fell more than 1% in the past two sessions combined as currency dealers reacted with disappointment to the Fed’s modest rate hike on Wednesday.

“The dollar is seeing massive inflows and that is short-term troubling for commodities,” said Ed Moya, analyst for Europe at online trading platform OANDA. “The dollar will benefit from a rapidly improving interest rate differential and steady safe-haven flows as investors (become) worrisome over the war in Ukraine’s impact on inflation and ultimately growth.”

Fed Chairman Jerome Powell reiterated after this week’s rate increase that the central bank will be “nimble” as it tries to balance the fastest economic growth in nearly four decades with inflation, also growing at its most frenetic pace in 40 years. After a 3.5% decline in 2020, the U.S. gross national product grew at its highest level since 1984. It was 5.7% higher last year. The Consumer Price Index (or CPI) measures inflation and it increased by 5.8% in 2021. This is its highest level since 1982.

The Fed has two mandates: Aiming for “maximum” employment among Americans with a jobless rate of 4% or below, and keeping inflation at 2% or below a year. With its first objective, it has been a great success. It brought unemployment to 3.8% in February after a record 14.8% April 2020 pandemic. However, its record for the second goal has not been good. CPI increased by 7.9% over the year, which was even more than December’s 7.0%.

Waller has always advocated for tighter money policy and greater fiscal discipline in order to control inflation. He said that the risk from the Ukraine conflict led him to vote for more moderate rate increases at March’s FOMC meeting.

However, he indicated that he could push for series of 50 basis point increases at future FOMC meetings in order to “front load”, a stricter policy with greater effect on tamping inflation.

“Going forward that will be an issue — about going 50 — in the next couple of meetings,” Waller said, anticipating resistance from other FOMC members. “But the data is suggesting we move in that direction. Frontloading rate increases is something I strongly support. (Let’s) just do it, rather than just promise it.”

Fed officials expect rates to rise to 1.9% before the end 2022, provided that the FOMC maintains 25-basis rate hikes during its six next meetings.

Waller did not specify where he would like the bank’s rate to be by the end of the year. But CNBC said he appeared to be targeting a 2.0-2.25% level based on his push for a mix of 25- and 50—basis point hikes.

In projections issued at this week’s FOMC meeting, three policymakers projected rates should end the year at 2.375%, while one projected a closing rate of 2.625%. The most aggressive of them, St. Louis Fed President James Bullard — who also happens to be Waller’s former supervisor — said rates should end the year at 3.125%.