Gold Price Off Its Highs On Powell’s Inflation Related Comments

Gold prices have fallen from their session highs but are still holding on to gains even as Federal Reserve Chair Jerome Powell signed that the central bank could aggressively tighten interest rates more than markets are expecting.

The gold market appears to be taking the hawkish comments in stride. April gold futures last traded at $1,935 an ounce, up 0.30% on the day.

Powell’s hawkish stance on monetary policy comes as inflation pressures grow. He added that the inflation outlook has deteriorated significantly as it has been persistently higher than forecasters have expected.

“Inflation is much too high. We have the necessary tools, and we will use them to restore price stability,” Powell said in his concluding remarks.

“We will take the necessary steps to ensure a return to price stability. In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well,” Powell said in his keynote address at the National Association for Business Economics Annual Economic Policy Conference.

Powell also noted that the central bank underestimated the severity of persistence of the global supply crunch and the strong demand for goods, as a result of the COVID-19 pandemic. Powell said that it is now uncertain when inflation pressure might start to cool.

“The risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher, which underscores the need for the Committee to move expeditiously as I have described,” he said.

As Powell highlighted the growing inflation risk, he also downplayed the impact that tighter monetary policy will have on the U.S. economy. He added that the central bank does not expect that tighter monetary policy will lead to a recession.

“No one expects that bringing about a soft landing will be straightforward in the current context—very little is straightforward in the current context. And monetary policy is often said to be a blunt instrument, not capable of surgical precision. My colleagues and I will do our very best to succeed in this challenging task. It is worth noting that today the economy is very strong and is well-positioned to handle tighter monetary policy,” he said.