Stock markets are paring gains on Thursday as investors eagerly await the appearance of Fed Chairman Jerome Powell at this year’s vitual Jackson Hole event.
The central bank’s monetary policy framework has been the hot topic this week, with everyone speculating about what changes the Fed will consider that will allow interest rates to remain lower for longer.
Despite central banks offering unprecedented amounts of stimulus and stock markets hitting new highs on a regular basis, investors are craving another stimulus fix. With rates already at record lows, attention is turning to the timeframe, with investors effectively looking for guarantees that they won’t move for a considerable period of time.
With negative rates seemingly off the table, yield curve control and flexible inflation targeting have become the new buzz phrases. Basically, anything that ensures rates won’t rise for a very long period of time. I mean, who wants to Fed police to turn up and spoil the party we’re seeing in equity markets right now?
Flexible inflation targeting isn’t the worst idea when you consider the Fed’s record of actually hitting 2%. I’m just not convinced policy makers are going to see a particularly strong case for significantly amending its framework right now as there’s no chance of rates rising for a considerable time anyway. Investors may have set themselves up for disappointment today and may have to settle for Powell reinforcing that rates are not rising for a long time. Then it’s a question of whether that’s accepted or punished, with the pressure increased through higher yields. But that’s for another day.
Oil steady as Laura hammers Gulf Coast
Oil prices are steady around the range highs this week as Hurricane Laura causes havoc on the Gulf Coast. The storm, referred to as “unsurvivable” by the National Hurricane Centre, has already been raised to category 4 and isn’t far from category 5. The destruction is could cause is considerable.
It may therefore be surprising that oil prices haven’t risen further given the forced closure of production and refining facilities. Perhaps traders are waiting to see what the damage is but the limited impact so far may also just be a reflection of the current oil market dynamics. Temporary disruptions are easily covered.
Gold eases ahead of Powell comments
Gold prices are easing off again as we await Jerome Powell’s appearance. The yellow metal jumped off its lows around $1,900 on Wednesday before running into some resistance around $1,960 as US yields slipped off their highs ahead of the event. There seems to be very high expectations so whatever happens, we’re going to see some volatility in these markets. I fear Powell won’t be able to keep up and traders will make their frustrations know with a spike in yields, lifting the dollar in the process and whacking gold again.
