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Jerome Powell's Impossible Challenge

Gold

Stock markets are inching higher ahead of Fed Chair Jerome Powell’s Friday address; however, investors are still on edge.

Fed Chairman Jerome Powell faces the impossible challenge of presenting a united voice on Fed policy from one of the most divided Federal Reserves in years, which can increase market volatility if he doesn’t ensure investors that the Fed will continue to slash interest rates.

Powell will need to ensure markets– which are already predicting one more rate cut in September– that the Fed will do whatever it can to support the economic and political climate amidst expanding concerns of stagnation in the U.S. economy. At the same time, he can not overpromise as it could create further turbulence.

For all his credibility as the most plain-spoken individual to run the U.S. Central Bank in years, Powell might be reluctant in his statements to fellow Central Bankers at this year’s Kansas City Fed financial symposium to say much about where rates will head. Why? He might not actually know where they are heading and a statement on the future could leave him in a precarious potion.

Strategists said more lack of consensus at the Fed could result in the markets losing confidence in the policymakers, and by extension, lose confidence that the Fed could lack the ability to head off an economic downturn. Because of this, the commonly watched 2-year to 10-year yield curve inverted a couple of times briefly in the past week. Other parts of the curve are already inverted, meaning the short term yield has risen above the longer-term yield.

Powell Under Pressure

Powell’s speech comes as both the Fed and its chair are under an extraordinary offense from the president, while an address that fails to assure investors the U.S. Federal Reserve will undoubtedly continue to reduce interests might spur even more market volatility.

Recently, Trump called Powell “clueless” and also urged the Fed to slash borrowing costs by a full percentage point to bolster the country’s economy, which is reeling from the U.S.-China trade war.

Related: Hong Kong Residents Are Fleeing To Taiwan At A Record Pace

Despite this, nonetheless, employment, as well as retail sales data, have remained stable, indicating a sound United States economic climate.

Powell’s colleagues inside the Fed are nowhere near a consensus on how to proceed. The Fed chair summoned a majority amongst the existing ballot policymakers to back last month’s price cut, but the minutes of the meeting released on Wednesday revealed a larger disconnect inside the committee than was shown in the decision.

Jasper Lawler, head of research at London Capital Group explained, “To say that the stakes are high for the meeting is an understatement,” adding, “Powell will take to the stage less than a month after the Fed’s first interest rate cut in a decade and amid market expectations of another cut next month.”

The majority of analysts predict that Powell will restate his prevailing message that the committee is trying to keep versatility amid heightened uncertainty, and it will rely upon inbound data to reveal the true influence of Trump’s trade war on the economy.

By Michael Kern via Macro-Investing.com 

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