That's Who We Are, That's What We Do - Jerome Powell

When asked if he is influenced by political criticism by president Trump, Federal Reserve Chairman Jerome Powell said that, "We don't consider political factors or things like that. That's who we are. That's what we do. And that's just the way it's always going to be for us."

Chairman Powell’s press conference began by saying, “Our economy is strong. These rates remain low, and my colleagues and I believe that this gradual returning to normal is helping to sustain this strong economy.”

In a highly anticipated move, the Federal Reserve today announced that they are hiking interest rates by 25 basis points (1/4%). This puts the Fed funds rate between 2% and 2.25%. They also announced their intentions to implement one more ¼% rate hike in December of this year.

With today’s rate hike, the Federal Reserve has had incremental and modest rate hikes three times this year, and eight times since they ended their monetary policy of quantitative easing in 2015.

Since that point in time, the Fed has shifted their monetary policy from easing to normalization with a target of approximately 3% as their end game.

The statement released at the conclusion of today’s FOMC meeting only contained one major change, and that was the removal of the word “accommodative” from their language describing their current monetary policy. By removing this verbiage, the Fed has signaled that their monetary policy has shifted to from lowering interest rates to accommodate growth to raising them to return to more normalized rates.

Threading the Needle Carefully

Fed Chairman Powell spoke about the unique and sensitive balancing act that the Federal Reserve must adhere to in order to allow economic growth to continue while not letting the current economic expansion overheat. He said that the Fed is accomplishing this task by virtue of their transparency, as well as slow and incremental interest rate hikes.

According to Bloomberg, the central bank has accomplished this balance only once in its 104-year history: to engineer a soft landing of the economy by raising rates just enough to prevent overheating, but not so much that they trigger a recession

Today’s rate hike was supportive of the U.S. dollar which is currently trading up about 2/10 % and fixed at 93.88. A strong dollar and solid selling pressure took gold prices lower in trading today with spot gold currently fixed at $1,194.40 per ounce and gold futures currently trading down by $6.50 and fixed at $1,198.60.

With another interest rate hike to be imposed at the end of this year, all things being equal, we could continue to see dollar strength and weaker prices in gold.

The wildcard has been the current trade dispute which could easily morph into a trade war with proposed tariffs now in play. Up to this point, the underlying belief has been that the United States will be less affected by a trade dispute than China, and this belief has been supportive of a stronger U.S. dollar. However inflationary concerns could definitely increase as the tariffs affect consumers buying habits.

Wishing you as always, good trading,