Can Gold Swim In A Crosscurrent?

Powell noticed some crosscurrents in the path of the US economy. Will it stay on the surface? And is gold a good swimmer?

Crosscurrents Cause Fewer Hikes

We hope that you enjoyed Christmas. As we promised last week, we will analyze the post-meeting Powell’s press conference today. The Fed Chair remained optimistic about the US economy, which “has continued to perform well.” However, “some crosscurrents have emerged.” Powell meant the moderation of global growth, increased financial market volatility, and tightened financial conditions. As a consequence, the Fed now sees only two instead of three hikes in 2019:

Many FOMC participants had expected that economic conditions would likely call for about three more rate increases in 2019. We have brought that down a bit and now think it is more likely that the economy will grow in a way that will call for two interest rate increases over the course of next year.

Well, it seems that either Powell feared Trump’s anger or he followed Greenspan, Bernanke and Yellen, and introduced its own put, after all. Trump and Wall Street 1:0 Powell and Co.

Have You Shifted Tone, Mr. Powell?

When it comes to the Q&S session, the journalists touched on interesting issues. A few of them were about still subdued inflation despite strong economic growth and low unemployment rate. The funny thing is that the Fed undershot its inflation target for the seventh year straight. Unfortunately, Powell dodged the question, but he sent another dovish signal, saying that “So, I do think that gives the Committee the ability to be patient in moving forward.” Excellent, gold adores patience, it’s eternal asset.

Another fascinating set of questions was about the neutral interest rate. One journalist pointed out that in October, Powell said that interest rates were a long way from neutral. While a month later, he argued that interest rates were just below neutral. Again, Powell did not actually explained the reasons for that change. Moreover, he modified his stance again, saying that “we’re at the lower end of the range of neutral”. Another month, another change!

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