(Kitco News) – Gold prices have jumped sharply higher as Federal Reserve Chair Jerome Powell appears to be laying the groundwork for a potential rate cut next month.
Powell walked a fine, neutral line in his much-anticipated speech at this year’s Federal Reserve central bank symposium. He noted rising inflation risks and slowing economic growth. However, he also said that despite balanced risks, a shift in U.S. monetary policy might be needed.
“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate. Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” he said in his speech. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
The gold market rallied to session highs in its initial reaction to Powell’s speech. Spot gold last traded at $3,353.60 an ounce, up 0.5% on the day.
In his speech, Powell noted that although the U.S. economy has remained fairly resilient, risks are starting to grow. He explained that the economy is facing new challenges as significantly higher import tariffs are reshaping the global trading system.
He also pointed out that tighter immigration policies have led to a slowdown in labor force growth.
Economists note that Powell has been paying close attention to the labor market, as its stability has been a key reason why the central bank has been reluctant to cut interest rates. However, Powell warned that risks to the labor market are growing, following disappointing data from July and sharp downward revisions in May and June.
“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment,” he said.
Meanwhile, Powell emphasized that inflation risks remain a major concern. He said that the impact of tariffs on consumer prices is clearly visible.
“We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts,” he said. “A reasonable base case is that the effects will be relatively short lived—a one-time shift in the price level. Of course, “one-time” does not mean “all at once.” It will continue to take time for tariff increases to work their way through supply chains and distribution networks. Moreover, tariff rates continue to evolve, potentially prolonging the adjustment process.”
“Of course, we cannot take the stability of inflation expectations for granted. Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem,” he added.
Along with sharply higher gold prices, analysts note that markets have once again fully priced in a rate cut at next month’s monetary policy meeting. At the same time, the CME FedWatch Tool shows that markets are pricing in at least one more rate cut before the end of the year.
Neils Christensen has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press.
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