Three dovish shifts from Powell fuels gold and stocks, dollar down

The Fed is all in to support the economy, focusing on employment and ignoring inflation. That is positive for gold and stocks, detrimental for the dollar. The initial moves may be compounded by further moves later on, Yohay Elam, an analyst at FXStreet, reports.

Key quotes

“The Fed will now allow for inflation to run above 2% to compensate for low inflation – that was expected but still implies a long-term change. Some skeptics stressed that the central bank has been missing its inflation goal of 2%, so aiming for higher levels is meaningless. Nevertheless, formalizing this shift – until the next review in five years time – gives markets support and also pushes gold higher.”

“At what level of inflation will the Fed hit the brakes? There is no answer to that. The lack of details means the bank seems to have lost its faith that prices may rise. Consequently, it would potentially ignore rising prices and let stocks and commodities overheat before understanding that it is too late. The bank is all in.” 

“Powell has explicitly stated that ensuring low unemployment takes priority over price stability. That is the icing on the cake that would mean lower rates for longer, weighing on the dollar.”