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(Kitco News) – With the Federal Reserve's interest rate cut in September threatening, likely chairman of the board Jerome Powell will leave plenty of room for the central bank to maneuver under his address at The Jackson Hole symposium on Friday, according to analysts.
Analysts do not see Powell opening the door for more than a 25-point cut in September under his Jackson Hole address titled "Challenges for monetary policy."
Powell's performance on Friday could be governed by the same theme as the press conference his in July, which did not commit the Fed to anything specific, Rhona O & # 39; Connell, INTL FCStone head of market analysis for EMEA and Asia, told Kitco News.
"What Powell did at the July 31
Under the Jackson Hole address, Powell will probably open the door to another 25-point cut, but avoid and promise something more.
"Powell will be aware of the fact that the first interest rate cut in July almost triggered consumer uncertainty because it raised concerns about whether to use it now," noted O & # 39; Connell.
The Fed wants to get more stimulus in the market, but avoid all fears that could delay major purchases.
"Another 25 basis points are probably justified for getting more stimulus in the market, but a 50-point cut can send red flashing light into the consumer mood and can be self-driving," O & # 39; Connell added.
Robust US economic data will also force Powell to avoid "pain [the Fed] in another corner," said BBH head of global currency strategy Win Thin on Monday.
"While the door has a nd should be open for further action, we do not think Powell will paint the Fed in a corner again, not when the data suggests otherwise," Thin wrote. "The picture painted last week by US data is actually good. Heading of retail sales rose 0.7% m / m against 0.3% expected … The so-called control group used for GDP calculations jumped 1.0% m / m vs. 0.4% expected. "
In addition, the Federal Reserve is still trying to figure out how to respond to global trade tensions, Thin added.
"No one can really say what the Fed's likely response function is right. Now with some degree of confidence. Markets clearly believe the Fed will bail Trump again, but we're not so sure. We don't think the Fed should reward bad trade and fiscal policy with interest rate cuts, "he said.
Meanwhile, US President Donald Trump has not given up when it came to putting more pressure on the Fed to cut interest rates more aggressively.
"The Fed, in a short space of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well," Trump said in a Twitter post.
BBH, howeve r, views the Fed as reluctant to cut interest rates again as soon as it adds that the central bank will want to observe the actual impact of trade tariffs first.
"We do not think the Fed wants to be seen as a den of Trump's demands. The Fed is also right to note that the impact of the tariffs is not yet felt and that they are still unknown," Thin said.
Powell is likely to be more hawkish than the markets expect, Pepperstone head of research Chris Weston said "With a 32% chance of a 50bp cut priced into the FOMC price markets in September, it feels on balance that if anything, Powell will be more hawkish than today's prices suggest, and it can be a USD-positive affair, "Weston said in a statement Monday.
However, Monday afternoon the market sentiment seemed to shift towards a less proficient one. At the time of writing, markets priced in a 95% chance of a 25 basis point cut and only a 5% chance of a 50 point cut, according to the CME FedWatch Tool.
– Kitco NEWS (@KitcoNewsNOW) August 19, 2019
What does all this mean for gold?
A more hawkish Powell could translate into more gold price consolidation this week, analysts pointed out.
"At a time when the price fails to give further momentum, you will begin to see some profit-taking. To be so much in such a short period of time, you would normally have expected greater withdrawal. We had not had one, "so O & # 39; Connell.
There will still be a bull market, O & # 39; Connell added, pointing out that the next support was $ 1480 – $ 1450.
"The market that has had enough uncertainty. Any downturn will be a correction. "We have changed our reach into gold. In today's environment it is impossible to call a bear market. $ 1,600 may well happen, but we will not get it in a straight line," she said.
This week, gold is fighting against rebounding stock markets and risk-on sentiment, noted Kitco's senior technical analyst.
"Gold and silver prices are lower in US trade on Monday, as traders and investors' risk have marked themselves to start trading week … Ox markets, even the strong ones, do not see prices rising every day. In fact, corrective map consolidation healthy and suggests that the trend can be maintained, "Wyckoff said.
At the time of writing, Comex gold was trading at $ 1,507.20, down 1.08% on the day.
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