Friday, August 24, 2018

Gold regains $1200 handle following Fed Chairman Powell's Jackson Hole assessment that all is well in economy

Early on Friday, Federal Reserve Chairman Jerome Powell released a speech from the central bank's annual conclave in Jackson Hole, Wyoming where he assessed that the economy was moving along smoothly, and that the Fed's current policy of gradual rate hikes would continue.

The day's most anticipated moment arrived, when moments ago Fed chair Jerome Powell released his speech titled "Changing Market Structure and Implications for Monetary Policy" which appears to have had zero surprises based on the preliminary assessment from Bloomberg which highlights the following key themes: 
  • Powell Sees Good Reason to Expect Strong Economy to Continue
  • There Doesn’t Seem to Be Elevated Risk of Overheating
  • Gradual Hikes Likely Appropriate if Growth Stays Strong
Powell also says that there are no clear signs of inflation accelerating above 2% (even those core CPI is now 2.4%), and curiously, Powell even explicitly cited Draghi saying:
As Brainard made clear, this is not a universal truth, and recent research highlights two particularly important cases in which doing too little comes with higher costs than doing too much. The first case is when attempting to avoid severely adverse events such as a financial crisis or an extended period with interest rates at the effective lower bound. 
In such situations, the famous words “We will do whatever it takes” will likely be more effective than “We will take cautious steps toward doing whatever it takes.” The second case is when inflation expectations threaten to become unanchored. If expectations were to begin to drift, the reality or expectation of a weak initial response could exacerbate the problem. 
I am confident that the FOMC would resolutely “do whatever it takes” should inflation expectations drift materially up or down or should crisis again threaten." - Zerohedge
Despite the fact that nothing actually changed from the current status quo, gold appeared to like the Chairman's words and has sprung back over $1200 for the first time in four days, with the overall price gaining $16 just an hour into the trading session.

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