Powell sent the strongest signal of rate cut, gold rose by $20 in the short term!
Powell, contrary to his usual behavior, boldly stated that "the time for policy adjustment has come", has the moment for gold to "take off" finally arrived?
At 22:00 Beijing time on Friday, Federal Reserve Chairman Powell delivered a speech on the economic outlook at the Jackson Hole Annual Meeting.
As Powell made it clear that the time for policy adjustment has come, "we do not seek or welcome further labor market cooling. I am more confident that inflation will return to 2%", spot gold rose by $20 in the short term, and the US dollar index fell by nearly 50 points in the short term, falling below 101 for the first time since December last year. Spot silver rose by 2.00% during the day.
Non-US currency pairs rose generally, the euro rose by nearly 30 points against the US dollar in the short term, the pound rose by 60 points against the US dollar in the short term, and the US dollar fell by 60 points against the yen in the short term. The US stock market continued to rise, with the S&P 500 index up 1% and the Nasdaq up 1.5%.
Traders increased their bets on a Fed rate cut after Fed Chairman Jerome Powell's speech. Interest rate futures traders expect the probability of a 50 basis point rate cut by the Fed in September to be about 33%, an increase from before Powell's speech.
The most active gold futures contract on COMEX traded 3,162 lots in one minute from 22:00 to 22:01 Beijing time on August 23, with a total value of $804 million.
Regarding the two risks corresponding to the Fed's "dual mission", Powell pointed out that the upside risk to inflation has weakened, while the downside risk to employment has increased.
The Wall Street Journal said that Powell sent the strongest signal of a rate cut so far, saying that the Fed intends to take action to avoid further weakness in the U.S. labor market. It is widely expected that the Fed will cut interest rates at its September meeting. Powell's remarks on Friday almost put an end to the Fed's historic anti-inflation campaign. Two years ago, Powell expressed his willingness to accept a recession as the price of reducing inflation on the same stage. Powell's attitude this time was far less ambiguous than at the press conference after the last meeting. At the time, Powell said the Fed needed more data before it could be confident that inflation was falling. Friday's speech showed that he now has the data.
Nick Timiraos, the "Federal Reserve mouthpiece," posted on social media that today's speech showed that Powell's policy shift had been completed. Powell showed a comprehensive dovish stance in his speech. Two years ago, he also said at the same time that the Fed would accept a recession as the price of restoring inflation.
Kathy Jones, chief fixed income strategist at Charles Schwab, said, "The signal we got is very clear, that is, the Fed is ready to cut interest rates. Concerns about labor market conditions now exceed inflation risks. With tighter policies, there is room for rate cuts."
Although the slowdown in economic data has led the market to believe that the Fed will cut interest rates in September, and the probability of a 50 basis point cut in September has increased, there are different views on the extent of the cut. According to CME's "Fed Watch", the probability of the Fed cutting interest rates by 25 basis points in September is 67.5%, and the probability of a 50 basis point cut is 32.5%. The probability of the Fed cutting interest rates by 50 basis points by November is 43%, the probability of cutting interest rates by 75 basis points is 45.2%, and the probability of cutting interest rates by 100 basis points is 11.8%.
Powell said: "The direction of progress is clear, and the timing and pace of rate cuts will depend on the upcoming data, the changing outlook, and the balance of risks."
Analyst Anna Wong: In our view, Powell's statement sounds quite dovish. So far, he has not stopped betting on a 50 basis point rate cut in September, has not said that the rate cut should be gradual, and has not used the word "methodical" to describe the possible path of rate cuts like his colleagues.
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