Over the weekend, Fed Chairman Jerome Powell gave an interview to CBS’ “60 Minutes” in which the head central banker stated that President Trump cannot fire him. Although Powell avoided direct commentary regarding the criticism from President Trump on the Fed’s policy actions, he did seem to make clear that he intends to serve out his term basing monetary policy on the economy rather than political considerations.

 

Over the last two years since Trump took office, the economy has been firing on all cylinders, seeing the best gains since the recovery began a decade ago with nearly 3% growth for last year. Some recent signs of weakness, however, may be symptoms of a larger, global slowdown that could potentially derail U.S. growth. Last week’s jobs data which showed the U.S. added just 20,000 jobs for February would seem to ratify concerns over first quarter growth. In addition to significant weakness in key data points, investors must also consider the fading tailwinds from tax cuts and corporate stock-buybacks. Put another way, the stock market rally may now be on its last legs.

 

The growing concerns over U.S. and global growth make the timing of Powell’s interview somewhat interesting. After hiking rates four times last year, the Fed is now “on-hold” and could potentially stay on the sidelines for the rest of the year. Some have even begun making the case for the Fed to start lowering rates again this year, and with little inflation to speak of, such a scenario may be increasingly plausible if the data stream shows further weakness.

 

The Fed now seems to find itself in a corner with no simple solution. If the central bank elects to lift rates again later in the year, stocks and risk assets could again come under significant pressure. If the Fed elects to sit tight or cuts rates, the dollar is likely to see a significant decline. Either scenario could be highly bullish for gold and dollar-denominated asset classes.

 

The ongoing U.S./China trade talks appear to be headed in a positive direction and investors are hopeful a deal may be reached soon. The tariff war has put a dent into the economies of both countries, and an agreement being reached could set the stage for what may be the final rally in equity markets. Looking at the bigger picture, it is unclear if a deal will be enough to put upwards pressure on growth rates and many of the current weak points are likely to remain weak without central bank intervention.

 

With so much uncertainty surrounding trade and the global economy, the gold market has entered into a consolidation phase. The market has thus far seen buyers step in at key support levels around the $1280 area but has yet to mount another challenge higher. The market could potentially spend some time in its recent trading range until more clarity is seen on a potential trade deal and until the Fed provides more clues regarding its plans for rates.