Jerome Powell, the president of the Fed admitted that they were already on the way to start the tapering process gradually. At the same time, the market already assumes that the program will be announced at the next meeting on November 3.
For the first time, the markets recognized that inflation might not be as temporary as they initially considered, with levels well above targets and supply bottleneck problems with no prospect of a solution in the short term. However, Powell declared that the Fed should be patient concerning this phenomenon and use all the tools if the price increases persist.
He also mentioned that the central bank, with its monetary policy, cannot combat supply problems and that it was premature to raise interest rates.
In short, an ambiguous speech that, while confirming the start of tapering, does not clarify the Fed's position regarding inflation, which is currently the primary concern of investors.
The tension in price levels has already been occurring for a long time, that it should be considered a temporary phenomenon and are caused not only by disruptions in supply chains, but also by the prices of raw materials, especially those energy that have skyrocketed in recent months and are endangering economic activity globally.
At the same time, in a labor market that is progressing at a very good pace, the tensions in wage costs are also being felt.
Altogether these are unequivocal inflationary elements that will affect the Fed's decision for changing its ultra-expansionary monetary policy towards a more restrictive one with interest rate hikes. This is the response that the financial community is waiting for. But looking at Powell's speech on Friday, there was some disappointment, considering that Fed policy could fall behind the curve.
The stock indices fell very slightly, although they are still waiting for the publication of results more than any other news.
This week will be important in this scenario, with the earnings of the large technology companies to be released. The US 10- year bond yield fell from 1.70% to 1.65%.
Early this week, the markets witnessed the most abrupt movement occurring in the GOLD price experienced a sharp rise to $ 1,813, largely as a result of triggering stop-loss levels around the $ 1,800 area. At the beginning of this week, the markets witnessed the most abrupt movement occurring in the GOLD.
It experienced a sharp rise to $1,813/ounce, largely as a result of triggering stop-loss levels around the $1,800 /ounce area. This rise was a result of the inflation expectations, with the Federal Reserve hinting at a not very aggressive response in interest rates.
From a technical perspective, the reference level is at $1790 /ounce where the 100-day SMA line passes. A daily close above this level would remove downward pressure on GOLD.
Sources: Bloomberg, Reuters