Gold prices have rebounded strongly as the Fed Chairman seems to be laying the foundation for the possibility of a rate cut next month.
In his much-anticipated speech at the Fed's annual thematic conference, Jerome Powell maintained a neutral and cautious stance. He noted the risk of rising inflation and slowing economic growth. However, he also said that while risks are balanced, US monetary policy may need to be adjusted.
In the short term, the risk of inflation is on the uptrend, while the risk of employment is on the downtrend - a difficult situation, he said. When our dual goals are so tense, the policy framework requires us to balance both.
Interest rates are now close to being neutral by more than 100 basis points compared to a year ago, and the stability of the unemployment rate as well as other measures of the labor market allow us to be cautious when considering adjusting policies.
He emphasized: "However, with the policy in a limited area, the fundamental outlook and the shift of risks may force us to adjust our stance."
The gold market soared to a high level in the session immediately after his speech. The last spot gold price was recorded at 3,353.60 USD/ounce, up 0.5% on the day.
In his speech, Powell noted that while the US economy is generally quite strong, risks are increasing. He explained that the economy is facing new challenges as significantly higher import taxes are reshaping the global trade system.
He also pointed out that tighter immigration policies have led to a slowdown in labor force growth.
Economists say Powell has been closely monitoring the labor market, as the stability of this market is the main reason for the Fed's hesitation to cut interest rates. However, Powell warned of rising risks to workers, following disappointing July data and sharp downward adjustments to May and June figures.
He said: "In general, the labor market seems balanced, but it is a strange balance because the labor supply and demand are stagnant. This unusual situation shows that the risk of job decline is increasing. And if that risk occurs, it could come very quickly in the form of mass layoffs and high unemployment rates.
Meanwhile, Powell stressed that the risk of inflation remains a major concern. He said that the impact of tariffs on consumer prices has been clearly shown.
We expect this impact to accumulate in the coming months, with many uncertainties in terms of scale and timing, he said. A reasonable scenario is that this impact will only be temporary - that is, a shift in the price level.
Of course, "one time" does not mean "all at once". The increase in tariffs will take time to spread through the supply chain and distribution system. Moreover, the tax rate continues to change, which may prolong the adjustment process".
He added: Of course, we cannot take inflation expectations for granted. In any case, we will not let a one-time price increase become a long-term inflation problem.
In parallel with the soaring gold price, analysts said the market has once again fully bet on the possibility of the FED cutting interest rates at next month's meeting.
At the same time, the CME FedWatch tool also shows that the market is pricing in at least one more interest rate cut before the end of the year.
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