Gold tops $3,370 as Powell puts September rate cut on the table

Fed Chair highlights rising labor market risks, balancing inflation concerns with employment softness

In his speech, Powell said that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” He added that “the stability of the unemployment rate and other labor market measures allows us to proceed carefully.”

He stated that risks on the labor market appear to be in balance and said that they’ve seen a “reasonable base case” that tariffs would create a “one-time” rise in inflation, but it would take some time to be reflected, as said a day ago by Cleveland Fed President Beth Hammack.

Powell said that “risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation.”

Gold price reaction

XAU/USD has risen, but it remains shy of cracking last week's high of $3,374. A breach of the latter would expose the $3,400, followed by the June 16 high of $3,452, ahead of the record high of $3,500. On the flipside, the $3,300 figure would be the first demand zone.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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