Gold price holds steady as Fed Chair Powell says the speed of rate hikes is no longer 'important'

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(Kitco News) The gold market pared back some losses and held steady as Federal Reserve Chair Jerome Powell testified that the speed of rate hikes is no longer "very important," supporting a more moderate pace of increases.

After pausing its rate hikes for the first time in fifteen months at the June meeting, Powell defended the decision during his testimony before the U.S. House Committee on Financial Services Wednesday.

"We did decide to maintain the federal funds rate at its current rate at this meeting. At the same time … almost all [participants] thought there would be additional hikes," Powell said. "The level to which we raise rates is actually a separate question of the speed with which we move earlier in the process."

The speed of rate hikes used to be "very important." The Fed increased rates by 500 basis points in just over a year. But that has now changed, Powell said. "It's not very important now … Given how far we've come, it may make sense to move rates higher, but to do so at a more moderate pace," he said.

Powell compared the end of the hiking cycle to driving a vehicle and getting closer to your destination.

"We were at 75 basis points for several meetings. And we were at 50 basis points, then 25 basis points. And now we're monitoring that peak, that pace, much as you might do if you were to be driving 75 miles an hour on the highway, then 50 miles an hour on a local highway.

And then as you get closer to your destination, you slow down even further," he described.

The June decision to hold rates steady should not be referred to as a "pause," Powell pointed out. "We never used the word pause, and I wouldn't use it here today," he said. "We agreed to maintain the rate at that meeting. Sixteen of the 18 FOMC participants wrote that they believe it'll be appropriate to raise rates. And a big majority believes in raising rates twice this year."

Following the release of Powell's statement, gold fell to a daily low of $1,929.30 an ounce. But the precious metal pared back some losses during the Q&A portion of Powell's testimony. At the time of writing, August Comex gold futures were trading at $1,942.20, down 0.28% on the day.

Powell said he believes that U.S. inflation will return to 2%, but it will be "hard to know" what level interest rates will be at when that happens.

On the banking sector, Powell reiterated that the sector is sound and resilient, noting that the U.S. biggest banks are "very strongly capitalized."

The lesson learned from the recent regional bank failures is that stronger regulation is needed. And with higher rates, the Fed is paying close attention to the commercial real estate situation.

U.S. lawmakers grilled Powell on the risk of de-dollarization, with the Fed Chair confirming that the U.S. dollar will remain the world's reserve currency for some time.

"The status of the dollar as the world's reserve currency is a very important thing to us," he said. "The reason we have that status is largely due to our great democratic institutions, the rule of law, and the fact that, generally speaking, we had strong levels of price stability. And I think the dollar will remain the reserve currency as long as those things are in place."

Powell got several questions about the crypto sector, focusing on stablecoins. He explained that the Fed views stablecoin payments "as a form of money," and it would be "appropriate" for the central bank to have "quite a robust federal role in what happens with stablecoins going forward."

He added that if the Fed were to be left with a weak role in allowing private money creation at the state level, it would be a mistake, Powell added.

On the CBDCs (central bank digital currencies), Powell noted that the U.S. is still a long way from that concept.