Federal Reserve Chair Jerome Powell has warned that it would be “appropriate” to raise interest rates by 50 base points, with two additional rises of the same amount also on the table, in order to bring inflation and price pressures down. The comments, which are sure to have sent a chill through the markets, couldn’t topple gold however with the precious metal showing barely a 0.5% decline on the day, in part thanks to a stagnant US dollar.
Chairman Powell’s comments were made at the Thursday annual spring meeting of the International Monetary Fund where he noted that speed was of the essence but also admitted that a strong longer market was not sustainble. He said “Inflation is much higher now and the policy rate is more accommodative. It is appropriate to move more quickly.”
The need to move quickly however needs to be balanced against the risk of triggering a recession, leaving the Federal Reserve walking a seemingly impossible tightrope. Adding to market jitters is the fact that the Fed’s European counterparts are extolling the virtues of moving slowly, with President Christine Lagarde saying that it isn’t appropriate to implement price hikes and the ECB will continue with its slow and steady approach, balancing the need to ensure economic recovery with a spike in inflation.
US investment firm Ingalls & Snyder’s senior portfolio strategist Tim Ghriskey says there are undertones in Chairman Powell’s comments that appear to recognise the recessionary risk. “Powell is intimating that avoiding a recession will not be easy. That is new,” he said. On the back of Chairman Powell’s comments, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all fell, with the Nasdaq slumping to a 1.59% loss in afternoon trading.
Gold meanwhile continues to behave as a stable, strong and safe store of wealth. Buy now.
