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Gold price tackles key level as Fed's Powell says uneven global vaccinations are 'risk to progress'

Kitco News

(Kitco News) The Federal Reserve views the pace of global vaccinations as a "risk to progress," the central bank Chair Jerome Powell said at a panel on the global economy during the IMF and the World Bank Group's 2021 Spring Meetings.

When asked to comment whether the Fed monitors the global vaccine rollout as one of the elements when determining its own monetary policy stance, Powell replied that the central bank would see lack of global vaccination progress as a risk to the overall economic recovery.

"Our asset purchasers will continue until we see substantial progress towards our goal. We are looking for actual progress — inflation and indicators of maximum employment. We would look at global vaccination as a risk to progress we are making," Powell said.

He added that viruses have no respect for borders. "Until the world is vaccinated, we will be at risk of new mutations and won't be able to resume activity around the world," Powell said.

There is still a risk from the COVID-19 pandemic in the U.S. as well with cases are moving back up, he pointed out. "I urge people to get vaccinated. We don't want another outbreak; it will slow down the recovery."

When speaking about the U.S. economy, Powell pointed out that the outlook is brighter due to quicker recovery and job creation. But he stressed that the economic recovery remains uneven and incomplete.

"8.5 million people out of work. This unevenness is a very serious issue," he said. "Real concern is that longer-term unemployment can allow people's skills to atrophy, and they have a hard time getting back to work."

The issue is known as labor scarring, Powell added, stating that there will be "millions of people" who will have a hard time getting back into the workforce.

The world will not be returning to the same economy, the head of the central bank highlighted. "It will be different. Companies spent a lot of time to have more effective technology and fewer people."

When asked about inflation, Powell once again reiterated that there is a difference between a one-time price increase and persistent inflation. "Inflation is something that goes up year after year. The level of inflation is dictated by underlying inflation dynamics versus bottlenecks."

Powell does foresee transitory higher prices and bottlenecks as economies open up and there is a surge in demand. But he remains convinced that the bottlenecks will resolve and the supply chain will adapt.

"We've had 25 years where inflation has been low. Some countries are fighting off disinflation. Now we have a situation where economies are reopening. There will be a surge in demand. There will be bottlenecks, perhaps. But they are unlikely to change inflation dynamics that have been in place for many years," he said. "Price increase will be temporary. There is no certainty in this. But if inflation expectations were to move up materially and persistently above 2%, we would react."

The usual way to deal with high inflation is to raise interest rates, Powell noted. "The traditional tool is to restrain economy and reduce inflation [by raising rates]. We don't think that is the most likely outcome."

Powell concluded that the world is focusing too much on the short-term and not enough on longer-term supply-side measures. "We need to invest in people and inclusiveness of the economy," he said.

Gold price traded at five-week highs as Powell spoke, successfully tackling the key resistance at $1,750 an ounce level. June Comex gold futures were last trading at $1,756.60, up 0.86% on the day.

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