Gold prices steady as Fed's hints at 'some' hikes in 2019

Gold prices steady as Fed's hints at 'some' hikes in 2019

Amid the recent volatility in stocks and other risky assets, President Donald Trump had stepped up pressure on the central bank to avoid more tightening in the runup to the announcement.

But Powell may have failed to smooth the market's key anxieties.

It also upset markets, sending the Dow Jones 350 points, or 1.5%, lower on Wednesday. "I think that the market was disappointed in the chairman's comments".

"He essentially told investors and traders that their bearish take is 100% wrong", Nicholas Colas, co-founder of DataTrek Research, wrote to clients.

"If they do it right, it could actually help the market", said David Kelly, chief global strategist for JPMorgan Funds.

The average investor is probably wondering how one person - albeit one powerful person - managed to send stocks into a fresh tizzy within an hour.

Ian Lyngen, head of USA rates strategy at BMO Capital Markets also said, "The market was looking for a little more than what they got". A single word could upset investors, which was obviously the case on Wednesday. It predicted that the economy would expand a robust 3.1 percent in 2018 before slowing to still-solid 2.5 percent in 2019.

At the same time, federal tax cuts and spending increases that juiced economic growth this year are set to begin fading in 2019.

Yet while stock markets may be clamouring for an end to monetary tightening, investors should take comfort in the knowledge that the Fed does not believe the world's largest economy is about to slip into recession. Not helping matters is Powell saying there is a "mood of angst" amongst businesses he speaks with on the economy. The U.S. stocks extended losses on Thursday, with Dow down 2 percent to a 14-month low. That is also below the Fed's long-term goal of 2%. In Powell's case, the challenge has taken the form of a controversial policy decision due to the competing pull of domestic economic conditions and the combination of technical market fragility and a slowing worldwide economy. Traders are fleeing to safety, according to reports, but with the looming crisis in Britain, the trade war between the USA and China and other problems in the Eurozone, there might not be anywhere to hide.

The Fed chief went on to say policy could move to neutral as opposed to being accommodative. The question for the Federal Reserve chairman is whether humility plays well with the financial markets.

"The Fed was not exactly clear on what they will do".

Jerome Powell sounded a note of humility Wednesday.

"The change to the Fed's tone is a nod to the increased uncertainties, slower global growth, [and] lower inflation", said Mickey Levy of Berenberg Capital Markets.

Alongside the rate rise, Mr Powell also said the central bank would keep reducing its holdings of trillions of dollars worth of government bonds which were purchased as a further element of crisis-era stimulus.

Not surprisingly, that message was not received well on Wall Street, where fears of an economic slowdown have mounted. Powell said that adjustments of the balance sheet reduction were not an option. From the standpoint of economic fundamentals, there is no reason why the S&P 500 should be down as much as 9.2 per cent this month, compared with a decline of just 3.7 per cent for the MSCI All-Country World Index ex United States, a gauge of global stocks excluding American shares. In other words, less friendly conditions for stocks.

"Heading as we are to potentially the worst monthly December performance for USA equity markets since the 1930s, it would be easy to think that we could well be heading for further heavy declines", said Michael Hewson, chief market analyst at CMC Markets.



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