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Investors shift their focus to Powell's upcoming speech on Wednesday

Commentaries & Views

The Chairman of the Federal Reserve, Jerome Powell has had multiple occasions to inform lawmakers and the public about upcoming actions by the Federal Reserve to reduce the high level of inflation. Although at the last FOMC meeting members decided to not raise its benchmark Fed funds rate and “pause” raising rates as they evaluate the net effect that the 10 consecutive rate hikes which began in March 2022 have had.

However, he made it clear that this pause does not signal an end to rate hikes but rather an absence of more rate hikes after moving the Fed funds rate from near 0% to between 5% and 5 ¼%.

Up until recently a percentage of market participants believed that the Federal Reserve would conclude its aggressive rate hikes at some point this year, with some investors anticipating a rate cut. The public needed to hear Powell’s message over and over before accepting the Fed’s aggressive policy.

Tomorrow Chairman Powell will once again speak and almost certainly reinforce statements made over the last few weeks when he speaks at the Policy Panel before the European Central Bank. The venue will take place in the municipality of Sintra Portugal.

The conference will contain speeches from ECB President Christine Lagarde, Andrew Bailey, Governor of the Bank of England, Kazuo Ueda, Governor of the Bank of Japan as well as Chairman Powell. Today Christine Lagarde said that inflation is still too high and it is still too early for her organization to declare victory over consumer price rises. In her speech she said, “inflation in the euro area is too high and is set to remain so for too long. But the nature of the inflation challenge in the euro area is changing”.

Both the ECB and the Federal Reserve are attempting to reduce inflation to the same target, 2%. In the eurozone inflation came in at 6.1% in May down from 7% in April, still very far from their target. This means that globally central bank officials will reinforce their messages which could have further and deep impacts on the financial markets that are sensitive to higher interest rates. Precious metals fall to the top of that list because they are non-interest-bearing assets.

Although the dollar is showing fractional weakness today it has not helped lessen the recent decline in gold pricing. Gold futures are currently down $10.50 with the most active August contract fixed at $1923.30. It would be hard to anticipate that gold is near a support level as long as the narrative by central banks worldwide is to continue to raise rates to reduce the persistently high levels of inflation. Tomorrow’s panel discussion which will include Chairman Powell could certainly increase the bearish sentiment that has existed in the precious yellow metal since the beginning of May which resulted in a price decline from the highs at $2083 to the lows achieved today at $1919.80.

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