Gold price jumps as Fed's Powell explains latest change in Fed speak

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(Kitco News) With the banking crisis hitting the markets, the Federal Reserve's monetary policy might have less work to do, according to U.S. central bank Chair Jerome, who leaned dovish during his press conference, sending gold prices higher.

The biggest change in the Fed's language after the Silicon Valley Bank fallout was a shift from expectations of "ongoing rate increases" to "some additional policy firming."

"We no longer state that ongoing rate increases will be needed to quell inflation. Instead, we now anticipate that some additional policy firming may be appropriate," Powell told reporters Wednesday.

Since the February FOMC meeting, economic indicators have been stronger than expected. But the events in the banking system are likely to lead to tighter credit conditions and act as an additional tightening mechanism, Powell explained.

"Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would, in turn, affect economic outcomes. It is too soon to determine the extent of these effects and, therefore, too soon to tell how monetary policy should respond," he elaborated. "We will closely monitor incoming data and carefully assess the actual and expected effects of tighter credit conditions on economic activity, the labor market and inflation."

When asked to clarify, Powell noted that "firming" refers to the policy rate and told markets to focus on the words "may" and "some" as opposed to "ongoing."

"What we were doing there is trying to reflect the uncertainty about what will happen," he said, adding that the banking sector is "sound and resilient."

Powell spoke after the Fed decided to raise rates by a quarter-point, which marked its ninth increase in a year. Markets largely expected this despite the recent turmoil in the banking sector. The federal funds rate is now at a new target range of 4.75%-5% — the highest since 2007.

For more details on the updated dot-plot and economic projections, click here.

Powell also ruled out rate cuts this year, stating that a reversal in policy is not the Fed's baseline expectation.

Despite many questions about contagion risk limiting Fed's choices, Powell said that the U.S. central bank's monetary policy tools "work."

When grilled about the Fed's review of the SVB collapse, Powell pointed out that he is interested in understanding what went wrong. "We will find that and then make an assessment of what are the right policies to put in place so that it doesn't happen again," he said.

On the path to a soft landing, the U.S. central bank chair said it's too early to tell whether the turmoil in the banking sector has had much of an effect. "I think that pathway still exists, and we're certainly trying to find it," he added.

Another interesting highlight from the press conference was Powell admitting that the Committee did "consider" a pause in rate hikes due to the stress in the banking system but ended up going with a 25-basis-point increase.