Published: Wed, June 26, 2019
Money | By Ethel Goodwin

Gold sells off following comments from Fed Chairman Powell

Gold sells off following comments from Fed Chairman Powell

"Crosscurrents have reemerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy", Powell said Tuesday in the text of remarks to be delivered at the Council on Foreign Relations in NY.

"The limited available evidence we have suggests that investment by businesses has slowed from the pace earlier in the year", Powell said.

Even as the US central bank left its benchmark interest rate unchanged for now, the shift in sentiment since its last policy meeting was marked.

Powell also touched on the importance of Fed independence, opening his speech by mentioning "the damage that often arises when policy bends to short-term political interests".

Powell said that "many" members of the Fed's policy committee believe the case to cut rates "has strengthened".

Powell noted on Tuesday that key aspects of the economy solid, with unemployment at historic lows and softer inflation readings expected to pick up.

St. Louis Federal Reserve Bank President James Bullard on Tuesday said he does not think the USA economic situation is dire enough to warrant cutting rates by a half-percentage point at its next meeting in July, even though he pushed to lower rates last week.

But he said he and his colleagues are now grappling with whether uncertainties around USA tariffs, Washington's conflict with trading partners and tame inflation require a rate cut.

For the last several months, Powell has preached patience when it comes to rate-setting policy.

Investors have always been anticipating rate cuts this year even as Fed policymakers had once suggested such a move would have been premature or even irresponsible in light of a strong labor market and lofty asset prices.

Despite Tuesday's sell-off, June is shaping up to be a good month for USA equities.

U.S. stock indexes dropped following Powell's remarks, while yields on U.S. Treasury bonds ticked higher.

Investors found no relief in a White House official's remarks - which downplayed expectations of US President Donald Trump's upcoming trade talks with his Chinese counterpart, Xi Jinping, at the G20 summit in Japan this weekend.

Powell's speech in NY amplified the central bank's recent message that policymakers are ready to step in to protect the world's largest economy, which next week will mark its longest expansion on record but is showing increasing signs of strain.

The fed funds complex implied traders saw a 36% chance of a bold 50 basis-point rate-cut next month, down from a 42% likelihood late on Monday. The dollar edged higher against a basket of currencies.

Powell said doing so would risk adding even more uncertainty to the outlook and that the FOMC "will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion".

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