USD Reclaims the Losses After Powell, Gold Hold Above $2,300

The markets responded positively to Fed Chair Powell’s remarks at his press conference, with the USD falling and stocks rallying, but it has reversed back, ending up where we were ahead of the FOMC statement release. Powell indicated that the next policy move is unlikely to be a rate hike, removing that potential risk for the time being.

As a result, the dollar has weakened, while stocks have rallied. The S&P 500 index moved 1.2% higher but is currently back down where it was. EUR/USD jumped 60 pips higher, but has given back most of the gains, as have done all forex majors. However, Gold is holding some of the gains, trading above $2,300.

Powell Q&A comments

• Jerome Powell Cites JOLTS report, including quits as a sign labor market coming into better balance
• I think it’s clear that policy is restrictive and that over time it will be sufficiently restrictive, the data will show if that’s so
• We’re committed to current restrictive policy for as long as it’s appropriate and we’ll do that
• I think it’s unlikely the next policy move will be a hike
• I think we would need to see persuasive evidence that our policy isn’t restrictive enough, I don’t think we’re seeing that
• We think our policy is well positioned to address different paths the economy might take
• I think there are paths that we could embark on rate cuts
• We want to see high wages but we don’t want to see them eaten up by inflation
• Part of getting inflation to target probably means wage hikes to more sustainable levels
• We don’t know how long it will be before we can cut rates
• My expectation is over the course of the year that inflation will move back down but my confidence in that is lower
• Thinks lower rents will show up over time, after substantial lags work through data
• I don’t see the ‘stag’ or the ‘flation’ and I was around for stagflation
• Restrictive policy is doing what it’s supposed to do
• I’ve been on the Fed for four Federal elections, look at the transcripts, there’s no political wrangling
• An unexpected weakening in the labor market would have to be significant, a couple of tenths in the unemployment rate probably wouldn’t do it

Traders worried about a more hawkish stance, but they are now relieved, quickly adjusting its expectations after Monday’s robust wage data. Powell faced pressure to make aggressive statements or consider rate hikes, but he skillfully worked himself around them. He emphasized that the Fed’s options are limited to either cutting rates or maintaining them at current levels for an extended period. Powell also rejected the idea that a weak jobs report would prompt the Fed to take action, noting that a significant increase in the unemployment rate would be necessary for any policy adjustments.

Gold Live Chart