Powell More Hawkish Than Thought
The Fed Symposium has now come and gone, along with Chairman Jerome Powell’s highly anticipated speech this morning. The Fed Chief did not provide much in the way of new information, but did suggest the Fed was ready and determined to stay the course in its fight against inflation.
Powell reiterated the Fed’s thinking that inflation is the worst risk for the economy. He suggested that high inflation cannot make the economy work for anyone. While a recession is nothing to sneeze at, the dangers of a major economic slowdown may pale in comparison to the dangers that come with price pressures at their highest levels in some 40 years.
The FedWatch Tool did not show much, if any, changes to odds of a large Fed hike next month following the speech. Right now, odds are still eventually split for either a 50 or 75-point rate hike next month. Unfortunately for the markets, Powell did not seem to provide anything fresh or newsworthy in his speech but rather used it to reiterate the Fed’s previous statements. Without any forward guidance provided by the Fed, markets could find themselves second-guessing the central bank’s intentions in the months ahead.
The lack of clarity from Powell about how high the Fed could go or, perhaps more importantly, when it may decide to reverse course and start lowering rates again, could fuel market volatility in the fall. Powell did mention the easing of policy, though, and suggested the Fed would have to be very careful not to begin easing too soon.
Powell’s comments may be a bummer for policy doves. The Fed does seem intent to keep fightin inflation for the time being. That fight will likely last well into next year or beyond, and rates could find themselves going higher during that time than anyone previously anticipated. The gold market may find itself moving little, if any, up or down and could spend much of that time moving sideways as fresh inputs are awaited.
Volatility has largely dried up once again in the gold market, but that will not last forever. The $1700 and $1800 levels remain key technical points that could determine market direction in the months ahead. Neither the bulls nor the bears have been able to produce a close above or below these levels. Once they do, however, the yellow metal could continue in that direction for some time. Given the bullish long-term narrative for gold, odds may favor an upside move or a downside. If the market does try to move lower, the bears may find themselves running into a brick wall of willing bargain hunters.
As market volatility dries up further, gold may become increasingly likely to make a significant move in either direction. Once the metal does start to move again, it could continue in that direction for some time or until fresh market influences are seen,
Powell’s hawkish commentary is weighing on the metal today and may continue to do so until the Fed meets again next month.