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(Kitco News) – The price of gold dropped to a low in the middle of Federal Reserve Chairman Jerome Powell's press conference following the central bank's decision to leave its monetary policy unchanged.
During the press conference, Powell expressed his optimism about the US economy, saying that low inflation was temporary and that economic growth was supported by job creation, consumption and investment. enterprises.
The June Comex gold futures fell to $ 1,277.30 an ounce, down 0.65% that day, after hitting record highs of nearly 1 $ 289.
"The yellow metal is under pressure as Federal Reserve Chairman Jerome Powell holds his press conference after the FOMC and looks positive for the US economic outlook," said Jim Wyckoff, senior technical analyst for Kitco. "With regard to the inflation outlook, Powell has somewhat eased operators worries about low inflation."
The Fed announced on Wednesday that it would keep interest rates unchanged in a range of between 2.25% and 2.50%. At the same time, the central bank has adjusted one of the tools to keep the federal funds rate in its target range – "interest on excess reserves" (IOER) – from 2.4% to 2.35%. %.
Powell explained that the move was a "small technical adjustment" that did not mean any change in central bank policy.
Powell also said that "strong underlying fundamentals" supported the US economy, including job growth, rising wages, consumer confidence and business investment. "The incoming data was broadly in line with expectations," he said. "Inflation has been lower than expected."
Powell also pointed out that "the underlying inflation had dropped unexpectedly". He then said the Fed suspected that "transient factors were at stake", with the central bank forecasting a 2% return of inflation.
#POWELL LIVE: Transitional factors retained #inflation are portfolio management services, clothing prices, air fares. There is reason to think that these would turn | #NOURRIS | pic.twitter.com/jQtU58zRbH
– NEWS Kitco (@KitcoNewsNOW) May 1, 2019
When asked to identify some of the transient factors to control inflation, Powell pointed to portfolio management services, clothing prices and airfares, while specifying that "there is reason to think that these would turn back".
Powell admitted that the only scenario in which the Fed would be worried about inflation would be to stay below the bank's target range for a long time.
However, not all market players and economists are convinced that low inflation is temporary.
"The last [inflation] the decline seems to be spreading … In particular, slower growth in unit labor costs is currently slowing inflation in services. If we are right and the weakness of underlying inflation persists, Fed officials will finally have to admit that it is more "persistent" and soften its policy accordingly, "said the US economist. Head of Capital Economics, Paul Ashworth.
The Fed chairman also pointed out that the data from China and Europe were better and that the short-term risks related to Brexit have somewhat dissipated for the moment.
"The committee is comfortable with the current political position. Do not see strong arguments for a rate change in one way or the other, "he said.
#POWELL the Fed's decision-making process: all FOMC members first make thorough preparations. The first day begins with an economic briefing. The 2nd day we talk about monetary policy | #NOURRIS | pic.twitter.com/OJh5mfdeoH
– NEWS Kitco (@KitcoNewsNOW) May 1, 2019
Powell also described the financial situation of the economy as resilient. "Non-financial corporate debt is a cause for concern, but overall financial vulnerability is moderate and the financial system is resilient. Households are doing well, "said Powell.
Overall, Powell said he sees the United States "on track for this year."
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 strictly for informational purposes. It is not a solicitation to exchange products, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept any liability for losses and / or damages resulting from the use of this publication.
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