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Gold and bitcoin jump as Fed's Powell takes 75bps hike off the table in June

Kitco News

(Kitco News) There was a significant rally in gold, bitcoin, and the U.S. stock market as Federal Reserve Chair Jerome Powell ruled out a 75-basis-point rate hike at upcoming meetings, contradicting market expectations for June.

Powell made his comments during a press conference that followed Fed's decision to raise rates by 50 basis points — the biggest rate hike since 2000.

"A 75-basis-point increase is not something the committee is actively considering," Powell told reporters Wednesday. "[We are moving] policy rate expeditiously to more normal levels. Additional 50bps increases should be on the table at the next couple of meetings. We'll make our decisions meeting by meeting as we learn from incoming data. The overarching focus is ... to bring inflation down to our 2% goal."

Despite the U.S. economy contracting 1.4% in the first quarter, Powell said there was a "good chance" for the Fed to achieve a "softish landing" as it aggressively tightens monetary policy this year.

"Households and businesses are in strong financial shape, the labor market is very very strong, the economy is strong and is well-positioned to handle tighter monetary policy. [But] it will be very challenging and will not be easy. It will depend on events out of our control," he said. "We raised by 50 bps today, and there is a broad sense within the committee that additional 50 bps should be at the table for the next couple of meetings."

Before slowing down back to just 25-basis-point hikes, Powell would like to see real progress on the inflation front.

"We want to see evidence of inflation moving lower. We need to really see that inflation is under control and starting to come down. One month's data is not enough. And then, we will not stop tightening; we will go back to 25 bps [hikes]."

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Some elements will remain outside Fed's control, such as upward pressure on inflation from Russia's invasion of Ukraine and China's COVID lockdowns.

But there are no indications that the U.S. economy is "vulnerable to a recession" or can't handle higher rates, added Powell. Yet, given global events and a tighter monetary policy, the U.S. economy could see slower growth, he admitted.

"We've been hit by historically large inflationary shocks since the pandemic. We had a pandemic. We had the highest unemployment since the depression, then we have this outsized response from fiscal policy and monetary policy. Then we haven't. And we have a war in Ukraine, which is cutting the commodity patch in half. And now we have these shutdowns in China. So it's been a series of inflationary shocks that are really different from anything people have seen in 40 years," Powell described.

Right now, Powell said he doesn't see a tension between the two sides of the Fed's mandate — maximum employment and price stability. "I don't, because you can see that the labor market is out of balance," he clarified.

Before the meeting, market participants were looking for an almost 100% chance of a 75-basis-point rate hike at the June meeting, according to the CME FedWatch Tool. Following the announcement, those expectations declined to 75%.

In response to Powell's slightly more accommodative comments, gold, bitcoin, and the U.S. stock market were all in the green as markets repriced future rate hike expectations.

June Comex gold futures jumped $20 on the day as Powell spoke, last trading at $1,885.30, up 0.79% on the day. Bitcoin rallied more than 5% on the day, last trading at $39,893. And the Dow was up 2.7%, the S&P 500 rose 2.8% and the Nasdaq gained 2.8%.

Live 24 hours gold chart [Kitco Inc.]

Gold has a chance to move past the $1,900 an ounce level here as Powell's statement provided some relief to those who expected to see a more hawkish stance, said TD Securities head of global strategy Bart Melek.

"It looks to me that gold retests $1,900/oz in the not-too-distant future, moving toward $1,938/oz if we start seeing more poor economic data," Melek said following Powell's press conference. "The gold rally today is likely driven by those who expected something more hawkish in the statements, the Fed Funds front, and QT. This is good for gold, as it suggests that real rates will stay negative for a while along the short end of the curve."

Click here to catch up on the Fed’s decision in more detail and learn about the Fed’s tapering schedule.

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