There was a significant rally in gold, Bitcoin and the US stock market after Federal Reserve Chairman Jerome Powell did not decide to raise interest rates by 75 basis points in the upcoming meetings and contradicted the market expectations in June.
Jerome Powel: 75 basis points not on the table!
As we have reported as Kriptokoin.com, Jerome Powell made a statement at the press conference he held after the Fed’s decision to increase interest rates by 50 basis points, which was the largest rate hike since 2000. “An increase of 75 basis points is not something the committee is actively considering,” Powell told reporters on Wednesday.
We are rapidly shifting the policy rate to more normal levels. Additional 50 basis points increases should be on the table in the next few meetings. According to what we learned from the incoming data, we will take our decisions by meeting. The overall focus is on reducing inflation to our 2% target.
Despite the US economy’s 1.4% contraction in the first quarter, Powell says there’s a ‘good chance’ for the Fed to make a ‘soft landing’ as he aggressively tightens monetary policy this year said that. Powell used the following expressions in his statements:
Households and businesses are in a strong financial situation, the labor market is very, very strong, the economy is strong and in a good position to manage tighter monetary policy. But it will be very difficult, it will not be easy. It will depend on events beyond our control. We raised 50 basis points today, and there is broad consensus in the committee that another 50 basis points should be on the table for the next few meetings.
Powell wants to see inflation under control
Powell wants to see real progress on the inflation front before reverting to just 25bps increases. “We want to see evidence that inflation is falling,” Powell said. We really need to see that inflation is under control and starting to drop. One month’s data is not enough. And then we won’t stop tightening; We will return to 25 bps increases,” he said.
Some elements, such as the upward pressure on inflation from the Russian invasion of Ukraine, and China’s COVID quarantines, will remain out of the Fed’s control. But Powell added that there is no indication that the US economy is ‘vulnerable to recession’ or that it cannot afford higher interest rates. Still, he acknowledged that given global events and a tighter monetary policy, the US economy could see slower growth. In his speech, Powel emphasized the following:
We have historically been affected by major inflationary shocks since the pandemic. We had a pandemic. We had the highest unemployment since the Depression, followed by this massive backlash from fiscal and monetary policy. We didn’t then. And we have a war in Ukraine that has halved the commodity supply. And now China has these shutdowns. So it was a series of inflationary shocks that were really different from anything people had seen in 40 years.
At the moment, Powell said he does not see tensions between the two sides of the Fed’s mandate (maximum employment and price stability), adding, “I don’t because you can see the job market is out of balance,” he said. he explained.
Jerome Powel spoke gold, Bitcoin and stock market boom
Prior to the meeting, market participants were giving almost 100% chance of a 75 basis point rate hike at the June meeting, according to the CME FedWatch Tool. After the announcement, these expectations fell to 75%. In response to Powell’s slightly more conciliatory comments, gold, Bitcoin and the US stock market were all green as markets repriced expectations of future rate hikes.
June Comex gold futures rose $20 on the day Powell spoke and were up 0.79% on the last day at $1,885.30. Bitcoin rallied more than 5% during the day, with the last transaction at $39,893. The Dow rose 2.7%, the S&P 500 2.8% and the Nasdaq 2.8%.
Bart Melek: That’s good for gold because…
TD Securities head of global strategy Bart Melek said Powell’s statement would expect to see a more hawkish stance. He said that there is a chance for the gold price to exceed the $1,900 level here, as it gives some relief. In his statement after Powell’s press conference, Bart Melek made the following assessment:
In my opinion, gold price may retest $1,900 in the not-too-distant future and if we start to see weaker economic data, it may move towards $1,938. Today’s gold rally is likely driven by those who expect something more hawkish in the statements, the Fed Funds front, and QT. This is good for gold because it shows real interest rates will remain negative for a while along the short end of the curve.
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