8月 27, 2020
After a short rally, gold prices have dropped back into a negative zone following the Federal Reserve’s Chairman Jerome Powell’s announcement. He said that the central bank will let inflation pressure edge higher.
In his eagerly-anticipated announcement at the annual Jackson Hole central bank meeting, Powell said that the U.S. central bank’s key objective was on average inflation and put the priority on ‘broad and inclusive’ employment.
In regards to inflation, Mr. Powell said: “following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”
He went on to say “In conducting monetary policy, we will remain highly focused on fostering as strong a labour market as possible for the benefit of all Americans. And we will steadfastly seek to achieve a 2 percent inflation rate over time.”
Commodity experts have said that rising inflation will keep on pushing real interest rates down, a key factor for long-term gold prices. After rapidly rising to the daily high of 1,987 USD an ounce, December gold futures then plummeted down to 1,929.70 USD an ounce, down 1.17 percent on the day.
The senior economist at CIBC Royce Mendes said that markets have been awaiting the central bank’s change in monetary policy and bond yields are pushing lower to echo the Federal Reserve’s move to loser monetary policy.
He said, “The change means that the central bank will be more willing to stimulate the economy even as the unemployment rate falls, specifically leaving the fed funds rate at the effective lower bound for longer than previously expected.”
In spite of the fact that the Federal Reserve is looking for inflation to climb above 2 percent, during the Q&A section of Mr. Powell’s speech, he attempted to curb some market expectations. He said that he anticipates inflation will only moderate overshoots and that they won’t be long-lasting.
While the Federal Reserve’s new “average” inflation objective could prompt a looser monetary policy position and additional stimulus, Paul Ashworth, chief U.S. economist at Capital Economics said that he doesn’t believe it will prompt more economic growth.
He said, “With long-term interest rates already very low and the Fed still ruling out negative rates as undesirable, we don’t expect that additional stimulus to provide any significant boost to the real economy. That means the Fed might struggle to hit its 2% inflation rate at all, let alone deliver above-target inflation. The bottom line is that monetary policy is approaching its limits and, while Fed officials would never admit that publicly, that explains why they have become so outspoken in encouraging Congress to put more fiscal stimulus in place.”
Fundamental Analyst for Global Markets
James has over 20 years of experience trading FX, cryptocurrencies and investments products for a range of investment banks and brokers
He spent the last 10 years analyzing and writing about foreign exchange, crypto-currencies and the global financial markets
He has also spoken at a range of conferences around the globe on various financial topics.