Gold Price Rises as Powell Signals "Time Has Come" for Rate Cuts

In a Friday (August 23) speech at the Jackson Hole Economic Symposium, US Federal Reserve Chair Jerome Powell indicated that adjustments to the central bank's benchmark rate are on the way.

“The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” he said.

Powell noted that the 2.5 percent rise in inflation over the past 12 months has provided greater confidence that inflation is on a sustainable path toward the Fed's target level of 2 percent.

This has been coupled with an overall cooling in the labor market. The unemployment rate now stands at 4.3 percent, which Powell said is almost a full percentage point higher than it was in early 2023, but still historically.

He noted that the rise in unemployment has not been the result of layoffs, which is typical during an economic downturn, but rather due to a substantial increase in the supply of workers and a slowdown in hiring.

Powell reminded the audience that two years ago in Jackson Hole he said taming inflation could result in higher unemployment and slower growth, and that some market watchers had concerns about a recession.

"Some argued that getting inflation under control would require a recession and a lengthy period of high unemployment, and I expressed our unconditional commitment to fully restoring price stability and to keeping at it until the job is done," he told the audience at the event. "The (Federal Open Market Committee did not flinch from carrying out our responsibilities, and our actions forcefully demonstrated our commitment to restoring price stability."

Powell noted that unwinding inflationary factors took longer than expected, but the Fed's restrictive monetary policy helped subdue demand while improving goods and services supply. Likewise, a moderation in labor demand without the need for layoffs helped ease the employment situation to a point where it is not a source of inflationary pressure.

His dovish tone gave markets a boost in morning trading. The S&P 500 (INDEXSP:.INX) saw a 0.77 percent gain to reach 5,612 points by 12:00 p.m. EDT, while the Nasdaq-100 (INDEXNASDAQ:NDX) gained 0.98 percent to hit 19,672 points.

The Dow Jones Industrial Average (INDEXDJX:.DJI) saw a 0.77 percent gain to reach 41,000 points.

Gold saw a similar boost, reaching US$2,510.33 per ounce, while silver was at US$29.73 per ounce.

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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.