* The Middle East crisis obviously threatens to cause oil price to spike, and even in the absence of a full blown war, inflationary expectations have rocketed (ask any 10 people where inflation will be heading, am sure you get ordinary folks saying higher in 9 out of 10) and expectations alone drive inflation higher
* So if Powell is waiting to see if inflation will progress lower, he already knows the answer, and if he is determined to stay pat, it is likely now we may not have any rate cuts this year, and if we do it could just be one cut in the second half as a 'gift' to Biden.
* But does the market and Gold care anymore? No. Strange isn't it?
* Every correlation as we knew it has been cast away, the markets want to do what it wants to do.
* We could see a stronger dollar ahead, which would be a real bad news for Japan, and the emerging markets
* And given Gold's disconnect with the higher dollar now, a stronger dollar is a real boon for AUD Gold and AUD Silver; just a week ago AUD Gold was at $3550, now $3721.
Powell says elevated inflation will likely delay rate cuts this year
AP
US Federal Reserve Chair Jerome Powell cautioned that persistently elevated inflation will likely delay any interest rate cuts until later this year, opening the door to a period of higher-for-longer rates.
“Recent data have clearly not given us greater confidence” that inflation is coming fully under control and “instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said during a panel discussion at the Wilson Centre.
“If higher inflation does persist,” he said, “we can maintain the current level of (interest rates) for as long as needed.”
The Fed chair’s comments suggested that without further evidence that inflation is falling, the central bank may carry out fewer than the three quarter-point reductions its officials had forecast during their most recent meeting in March.
His remarks represented a shift for Powell, who on March 7 had told a Senate committee that the Fed was “not far” from gaining the confidence it needed to cut rates. At a news conference on March 20, Powell appeared to downplay that assertion. But his comments on Tuesday went further in dimming the likelihood of any rate cuts in the coming months.
In the past several weeks, government data has shown that inflation remains stubbornly above the Fed’s 2 per cent target and that the economy is still growing robustly. Year-over-year inflation rose to 3.5 per cent in March, from 3.2 per cent in February. And a closely watched gauge of “core” prices, which exclude volatile food and energy, rose sharply for a third straight month.
As recently as December, Wall Street traders had priced in as many as six quarter-point rate cuts this year. Now they foresee only two rate cuts, with the first coming in September.
Powell’s comments followed a speech earlier Tuesday by Fed Vice Chair Philip Jefferson, who also appeared to raise the prospect that the Fed would not carry out three cuts this year in its benchmark rate. The Fed’s rate stands at a 23-year high of 5.3 per cent after 11 rate hikes beginning two years ago.
Jefferson said he expected inflation to continue to slow this year with the Fed’s key rate “held steady at its current level.” But he omitted a reference to the likelihood of future rate cuts that he had included in a speech in February.
Last month, Jefferson had said that should inflation keep slowing, “it will likely be appropriate” for the Fed to cut rates “at some point this year” — language that Powell has also used. Yet neither Powell nor Jefferson made any similar reference Tuesday.
Instead, Powell said only that the Fed could reduce rates “should the labour market unexpectedly weaken.”
Fed officials have responded to recent reports that the economy remains strong and inflation is undesirably high by underscoring that they see little urgency to reduce their benchmark rate anytime soon.
On Monday, the government reported that retail sales jumped last month, the latest sign that robust job growth and higher stock prices and home values are fuelling solid household spending. Vigorous consumer spending can keep inflation elevated because it can lead some businesses to charge more, knowing that many people are able to pay higher prices.
