When Lights Go Off, What Does Gold Do?

Powell has recently came up with the metaphor of wandering in the darkness. Will golden sunshine brighten the dark?

I Am the Fed Chair and I Know Nothing

On November 14th, Powell discussed global perspectives in Dallas Fed with its President, Robert Kaplan. He characterized the Fed’s stance, providing an interesting analogy:

A non-economic example [of the approach adopted by the Fed] would be you’re walking through a room full of furniture and the lights go off. What do you do? You slow down. You stop, probably, and feel your way. So it’s not different with policy.

Has Powell just admitted that the most important central bank in the world is basically straying in the dark? That it is like a lost kid in a fog, rambling idly without a fixed direction or aim? Last year, Yellen described low US inflation as mystery. Now, Powell moved further and confessed that he knew nothing. It’s a bit disturbing, but maybe the Fed Chair is just a disciple of Socrates who understands that attaining wisdom is to admit own ignorance. Yeah, maybe.

Am I Dove, Now?

Jokes aside. Has Powell tilted toward the dovish camp? Well, he has definitely softened his tone recently. As we reported last week, Powell suggested that the federal funds rate might be closer to the neutral level that he thought previously.

However, we have wait for the economic projections – the FOMC members will update their rate forecasts in the so-called dot-plot at their meeting in December 18-19. As a reminder, the median forecast in September was for three increases of 25 basis points each in 2019. But the Committee was far from unanimity. The birds tweet that the voting members were actually evenly split among two, three and four hikes next year.

Will some hawks transform into doves? It’s possible, but not likely. What is more likely is that some hawks will transform into centrists. But even if all members who were voting for four hikes will start to opt for only three raises, the median number of proposed hikes will not change. Two more officials would have to argue for only two hikes to change the picture.

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