Powell’s Words Continue to Resonate, Shaping Market Sentiment

Yesterday’s press conference held by the chairman of the Federal Reserve, Jerome Powell, announced that the central bank would keep its current fed funds rates at a range of 2.25% to 2.50%. Although it was widely expected that the outcome of this month’s FOMC meeting would leave interest rates where they stand, the confirmation of that assumption boosted the precious metals, as well as U.S equities.

Most importantly his tone came off much more dovish stance in terms of current monetary policy. One of the crucial changes being the announcement that the ‘autopilot’ of balance sheet reduction by the Federal Reserve could be slowed down.

As we spoke about yesterday  the Federal Reserve in charge of the central bank has reduced their asset sheet by almost a half of a  trillion dollars. The following quote is taken directly from the board of governors of the Federal Reserve system website, “Since the beginning of the financial market turmoil in August 2007, the Federal Reserve’s balance sheet has grown in size and changed in composition. Total assets of the Federal Reserve have increased significantly from $870 billion on August 8, 2007, to 4.5 trillion in January 14, 2015, and have been declining since the beginning of the FOMC’s balance sheet normalization program in October 2017.”

As reported in MarketWatch, Edward Moya, market analyst at Oanda said, “Rate hike expectations for the remainder of the year have completely disappeared, with the market pricing in a greater chance of a cut as the next move.” 

With the high probability of a much more dovish Fed in terms of interest rate hikes this year, the central bank will begin to focus more closely on our current budget deficit. In his speech yesterday Chairman Powell said, “In the long-term, the Federal budget is not on a sustainable path and needs to be addressed.”

Obviously concern about a federal budget deficit that has run amok and is out of control needs to be tackled and Resolved, not just addressed. If this can is kicked down the road you can expect much higher pricing in gold ahead.

Wishing you as always, good trading,