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(Kitco News) – While its highs are low, gold keeps decent gains, while Federal Reserve Chairman Jerome Powell reports that the Federal Reserve may soon end its tightening cycle.
Powell was relatively optimistic about the US economy, noting initially that the country was on the verge of achieving price stability and maximum employment. However, for many badysts, the key phrase that gives Powell's comments a perverse allusion is his view that interest rates are almost neutral.
"Interest rates are still low by historical standards and they stay just below the wide range of estimates of the level that would be neutral for the economy – that is, say, no acceleration or slowdown in growth, "he said in his speech to the New York Economic Club.
The US dollar has fallen sharply, with gold exceeding $ 1,230 an ounce in initial reaction to Powell's comments. While gold is above its peaks, the precious metal continues to show solid gains. The latest gold futures in February traded at $ 1,226.30 an ounce, up 0.52% on the day.
Adam Button, chief currency strategist at Forexlive.com, said that Powells' comments could indicate that the Fed will probably not continue to gradually raise its interest rates next year.
"Powell barely mentioned the gradual pace of rate hikes and, when he did, it was generally in the past. At the same time, he said that rates are not on a predefined trajectory and highlighted the incoming economic data, "he said.
However, not all economists are convinced that Powell has become completely dovish. Avery Shenfeld, Senior Economist at CIBC World Markets, said the markets were reading too much in his comments.
"The Fed Chairman has comforted those of us who thought that a 4% rate in federal funds would be excessive, saying that rates today are" just below the neutrality "and pointing out that there is no predefined path. But remember that the latest message from the FOMC was that rates should go above neutrality and lead to a non-inflationary unemployment rate that they thought was higher than the current unemployment rate, "he said. declared. "So, while we are planning only two hikes next year (well below the last FOMC points projection) and a facility in 2020, we do not consider this speech as dovish as the market seems to take it. . "
Four risks for the economy
Although Powell pointed to the growing risks to the US economy, while stressing that there was no significant warning signal and that it was looking at excessive leverage, there is no vast accumulation abnormal leverage.
"As in the case of banks, the equity of insurance companies and brokers appears to be robust, and securitization levels are much lower than before the crisis and existing structures are based on more stable funding, "he said.
Powell noted that financing and credit risks also remain low in today's economic environment.
"Today, we consider that the vulnerabilities related to the financing risk are low, banks have low liabilities, capable and capable of operating, and high liquidity to finance cash outflows", he said. declared.
Debt growth, particularly at the corporate level, continues to be closely monitored but is in line with current economic growth, Powell said.
"The ratio of corporate debt to GDP is about what we could expect after almost a decade of economic expansion: it is well above its trend, but not yet at the peak reached at the end of the 1980s or at the end of the 90s. In recent years, these seem to be in line with the growth of business badets in relation to GDP, "he said.
The last risk put forward by Powell in his speech was the valuation of badets; However, he added that he did not see the risk of bubble formation on the financial markets.
"Looking across the landscape of the major badet clbades, we see some clbades for which valuations seem high relative to history," he said. "However, we do not see any major badet clbad in which valuations seem to be well above the standard benchmarks, as some, for example, in the late 1990s, marked by the dot-com boom However, from the point of view of financial stability today, we do not see dangerous excesses in the stock market.
Warning: The opinions expressed in this article are those of the author and may not reflect those of the author. Kitco Metals Inc. The author has endeavored to ensure the accuracy of the information provided. However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to exchange merchandise, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept liability for losses and / or damage resulting from the use of this publication.
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