Gold steadies after Fed minutes echoes rates could rise soon

Thursday, 23 Aug, 2018

"You could see Jerome Powell hit back a little, not per se by naming (Trump) but going on why they still feel policy is accommodative".

Markets barely budged after the release of minutes from the Federal Reserve's policy meeting that ended August 1.Futures traders priced in a slightly higher chance that the Fed will increase rates two more times this year. The central bank is created to be independent from political interference.

"I asked him specifically about the independence of the Fed, and he reinforced the fact that their goal is to [address] unemployment, our economy, and that is their only objective", Scott (R-S.C.) said in an interview.

He told reporters he was "not thrilled" with the Fed for raising interest rates, which it has done five times since he took office. The Fed has raised rates twice this year and is widely expected to tighten policy again next month.

In the meantime, the central bank is standing by its plan for higher rates as the economy strengthens, according to the minutes.

The Fed's minutes made no mention of Trump's criticism as a factor in its decision-making.

And: Is Chairman Jerome Powell troubled by President Donald Trump's public denunciation of the Fed's interest rate hikes? It is hardly surprising that the current outspoken president has broken the decades-long presidential silence when it comes to the Fed, nor is it surprising that Trump has said he will continue to criticize the central bank as needed. Taken together with previous comments, we see a clear pattern of the president willing to talk the United States dollars lower whenever it starts to look a bit toppy. While economic theory (in the simplest terms) says that rate hikes slow the pace of economic growth, interest rates today remain historically low, and measures of credit growth show that access to loans is still generally easy.

"The dollar has slipped in response to President Trump's comments, though the underlying upward trend remains intact", VTB Capital economist Neil MacKinnon said on Tuesday. A slower pace of rate increases would be meant to encourage continued borrowing and spending by companies and individuals to drive economic growth.

"I doubt these comments move the needle for Powell and his colleagues, but it certainly sends a strong signal to those candidates interested in vying for one of the Fed Board's many open seats: favour easy money policy or find another job", LeBas said.

"I think the Fed understands what its role is, and its role is to be an independent body".

The wider point is that markets may be overanalysing yesterday's comments, given that Trump also criticised the Chinese central bank as well as the European Central Bank for keeping their currencies artificially weak, and what he said isn't exactly new. The Loonie, shifted slightly on the back of these comments although the biggest gains were to come from President Trump.

Wall Street analysts near universally expect the Fed will raise rates at its next meeting at the end of September.