Some people worry that rapid price increases may become a long-term feature of the economy, forcing the Fed to raise interest rates and shorten the time for economic recovery. Fed Chairman Powell denied this last Friday (August 27).
He said at the annual Jackson Hole Economic Symposium held by the Kansas City Federal Reserve that although the recent inflation data is “worrisome”, the tightening of monetary policy in response to what he believes may be a temporary trend may be a “Especially harmful” errors.
The current inflation is weakening consumer confidence and becoming a political hot potato, and US President Biden is considering whether to appoint Powell as chairman of the Federal Reserve. Such a statement at such an opportunity is quite arousing war.
Powell decided to just say why inflation is not a cause for concern—not to talk about possible problems. The supporters of the policy framework he has advocated over the past year praised it. The policy framework advocated by Powell emphasizes the Fed’s full employment goal and refuses to adopt the Fed’s usual anti-inflation measures to preemptively raise interest rates.
However, those who are less optimistic about the risk situation expressed critical attitudes. Former White House Council of Economic Advisers Jason Furman said that Powell “didn’t take any of the other side’s claims seriously.”
In fact, Powell admitted in his speech last Friday that at least at last month’s policy meeting, he agreed that the Fed would begin to reduce its monthly asset purchases by $120 billion this year, because inflation has reached the threshold for doing so, employment It is expected to make further progress.
But the Fed has stated that if it is to raise interest rates, the economy must meet stricter tests, including not only full employment, but also that the inflation rate has reached and is expected to exceed 2% within a period of time. Although some other Fed policymakers stated that they believe that inflation has reached this unattainable goal, Powell still did not make a statement.
Powell said, “Time will tell whether we continue to reach 2%,”
Here are five key points why Powell is not upset:
① The foundation is not extensive
So far, inflation has come from price hikes in a few industries, especially the goods and services industries that have been hit hardest by the new crown epidemic; as the economy reopens, demand in these industries is rapidly recovering.
② The biggest increase has faded
The prices of automobiles and other durable goods have skyrocketed in the summer and are now stabilizing or declining. “Over time, it seems unlikely that durable goods inflation will continue to make a significant contribution to overall inflation,” Powell said.
③ As of now, there is no threat from salary
Wages are rising, but the rate of increase is not faster than the rate of productivity increase or inflation, and it will not lead to a spiral. “We will continue to pay close attention to this,” he said.
④ Inflation expectations are anchored
Powell said that the market-based and survey-based indicators that the Fed pays attention to indicate that inflation expectations have returned to a level more consistent with the inflation target, but the rate of increase is not as fast as actual inflation. “This shows that households, businesses and the market Participants also believe that the current high inflation data may only be temporary.”
⑤ From a global perspective, the pressure is downward
Factors such as population aging, globalization, and technological advancement in the United States and elsewhere are driving down global prices. Powell said, “There is no reason to think that they have suddenly reversed or weakened.”
Investment veteran Michael Mack suggests holding 10% of gold
Powell’s dovish statement helped gold rise by 1.4% to around $1,820 last Friday, while pushing the U.S. dollar index to a two-week low.
Stephen Innes, managing partner of SPI Asset Management, said, “After Powell’s speech on Friday, the market began to readjust its expectations for a US interest rate hike. His speech was a green light for gold to go higher.”
Investors will now pay close attention to the August non-agricultural employment data to be released on Friday.
Avtar Sandu, senior commodity manager at Phillip Futures, said in a report: “The price of gold will again need to overcome the ominous resistance of $1839 before there are more additional buying orders.”
Investment veteran Michael Marks said that investors should hold 10% of gold in their portfolios, because the currency will depreciate after unprecedented stimulus measures are introduced around the world in response to the new crown epidemic.
At this stage, “10% should be invested in physical gold,” Makpusi said. He founded Mobius Capital Partners after working for Franklin Templeton Investments for more than 30 years. “Given the incredible amount of money that has been printed, the global currency depreciation next year will be quite noticeable.”
As the new crown epidemic prompted investors to flock to safe-haven assets, the price of gold rose to a record high last year, but after the launch of the vaccine, the price of gold has already fallen. In response to this crisis, central banks and governments around the world have introduced unprecedented monetary and fiscal stimulus measures, pushing up the balance sheets of institutions such as the Federal Reserve, and causing government financial constraints.
A long-term optimistic about gold, Ma Pusi said in an interview, “It is very, very good to own physical gold. Physical gold can be used at any time, and there is no risk of the government confiscation of all gold.”
At 20:28 Beijing time, spot gold is now quoted at US$1816.20 per ounce.