Jerome H. Powell, the Chair of the Federal Reserve, is set to make a significant appearance at an upcoming event in Sintra, Portugal. His comments are expected to be very hawkish, which would be likely to strengthen the USD and lower the gold price. Powell was sworn into office on February 5, 2018. Since that moment, he has been at the forefront of monetary policy making in the United States.
Market participants are particularly attentive to Powell’s comments, as they will provide clues about the Federal Reserve’s stance on inflation and interest rates. Much speculation has followed as to whether he will indicate a continuation of the Fed’s current dovish monetary policy, or foreshadow potential future easing measures. Investors are extremely interested to hear any hints or revelations that might have a dramatic impact on the US Dollar and gold prices.
Shortly before Powell’s highly anticipated speech, the financial world is still trying to figure out what his speech means for them. Analysts expect that if he telegraphs some notion of a weaker-than-expected inflation, it would strengthen the case for a rate cut. Such a change in sentiment would boost the odds of the Federal Reserve taking easing actions substantially. On the other hand, if he makes hawkish noises, that could add more confirmatory weight to gold’s recent plunge.
Jerome Powell’s Role in Economic Policy
Jerome H. Powell has served on the Federal Reserve since May 25, 2012. On that day, he joined the Board of Governors, where he would assume a crucial role. His subsequent nomination as Chairman by President Donald Trump on November 2, 2017 was a major turning point in his career. Powell was sworn in as Chair on February 5, 2018. Since then, he’s deftly steered the province through a number of storms – from navigating the fallout of U.S./ China trade tensions to steering B.C.
During his term, and particularly in recent months, the Federal Reserve has acted cautiously. They’re centered on the pursuit of accelerating economic recovery without exacerbating inflation. The development decisions he presided over are felt both in national markets and in the international markets for generations to come. Powell’s commitment to transparency and clear communication has laid a bedrock foundation of how expected monetary policy will shape market expectations.
His forward looking Sintra speech comes at a time of tremendous economic upheaval. Inflation rates are changing day to day, and market sentiment seems to turn on a dime. Investors are very eager to hear how Powell is interpreting all of the recently released economic indicators and what they mean for future actions from the Federal Reserve.
Potential Market Impact of Powell’s Comments
The financial markets are already preparing for possibilities in advance of Powell’s speech. Analysts tell us that this time around, a narrow interest will be placed on his views on inflation and interest rates. A signal of weaker-than-expected inflation would likely raise the odds of a September rate cut. This is currently being priced into the market with a 77% probability of this outcome after Powell’s expected dovish rhetoric.
The US Dollar’s implications are deep. If Powell does end up on the dovish side of things, we could see a substantially weaker Dollar as traders recalibrate their anticipated path of interest rates. Alternatively, if there is even a suggestion of a more aggressive tilt to the Fed’s course that would likely support the Dollar and be bearish for gold.
Similarly, gold prices are a direct function of Powell’s remarks. If his remarks are taken to mean great things for economic growth and inflation control, it will be a sure roadblock to gold’s rebound. On the flip side, any indication of easing or hesitation on inflation will likely prop up gold as investors flock to safe-haven assets.