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Gold price at daily highs as Powell says 'too early' to taper, reaffirms inflation is 'transitory'

Kitco News

(Kitco News) The gold market has turned things around with prices rising to daily highs as Federal Reserve Chair Jerome Powell stated that one great jobs report does not mean it is time to start talking about tapering.

Powell spoke after the Fed kept its monetary policy unchanged while downplaying rising inflation.

"It's not time to start talking about tapering. We'll let the public know well in advance. It will take some time before we see substantial further progress," Powell told reporters on Wednesday. "We had one great jobs report. It is not enough to start talking about tapering. We'll need to see more data."

In March the U.S. economy saw its best job growth since August with 916,000 jobs being created. The data significantly beat expectations as economists were expecting to see job gains of around 652,000.

The head of the central bank also spent a lot of time talking about inflation. Powell once again reiterated that price pressures are likely to be transitory while noting that the Federal Reserve is prepared to act if it turns out that they are wrong.

"The PCE inflation expected to move above 2% in the near term. But these one-time increases in prices are likely to have only transitory effects on inflation," he said.

He added that it would be unlikely for inflation to move up in a persistent way while there is slack in the labor market.

Powell also pointed out that there are major differences between now and the 1960s and 1970s when it comes to inflation.

"We are making our way through unprecedented series of events. These price pressures are associated with the re-opening process. This is not the same thing as persistently higher year-over-year inflation that is not consistent with our goal of 2% inflation over time," he said. "The principle difference from the 60s and 70s — our goal of 2% inflation."

On top of that, Powell reminded markets that the Fed knows its job and is prepared to act if inflation were to move persistently and materially above 2%. "We would use our tools to bring inflation expectations down," he said.

In the meantime, there are two main reasons for temporary inflation pressures in the near term: Base effects, which are transitory. And bottlenecks, which are temporary blockages in supply chains.

"We were focused for many years on inflation deviating below 2%, and we used our tools aggressively to bring it back up at 2%. If we see inflation moving up materially, we will use our tools to guide it back down to 2%. But this is not what we expect," he said.

Gold prices reacted positively to Powell’s comments, recovering earlier losses and rising to daily highs. At the time of writing, June Comex gold futures were trading at $1,782.10, up 0.19% on the day.

Live 24 hours gold chart [Kitco Inc.]

Powell on U.S. dollar as the world's reserve currency, digital currencies

Markets were also busy digesting Powell's comments on the U.S. dollar as the world's reserve currency. The topic was brought up when Powell was asked about the digital U.S. dollar.

"We are the world's reserve currency, and that means that the U.S. dollar is used in transactions all around the world far more than other currencies. And that is because of our rule of law, our democratic institutions, and our economy. All the things that make the United States the United States. And of course, we have open capital accounts, which are essential if you are going to be the reserve currency," he said.

Powell noted that he is "less concerned" about another country developing the digital currency first. "I am really concerned about getting it right. We feel an obligation to understand the technology and all the policy issues very well. There are some very difficult questions to answer," he said.

The Fed Chair also referred to China's digital currency, stating that something like that wouldn't work in the U.S.

"The currency that is being used in China is not one that would work here. It is one that allows the government to see every payment which is used in real-time," he said.

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