Brainard Talks Prudence in Rate Hikes – Gold Jumps

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Markets rebound after speech by Fed Reserve Governor Lael Brainard calling for “prudence” in rate hikes.

Stock market and the Gold market loves her comments, but I think the rally will be short lived.

Here are the five main highlights from Brainard’s speech:

  1. Inflation Has Been Undershooting, and the Phillips Curve Has Flattened
  2. Labor Market Slack Has Been Greater than Anticipated
  3. Foreign Markets Matter, Especially because Financial Transmission is Strong
  4. The Neutral Rate Is Likely to Remain Very Low for Some Time
  5. Policy Options Are Asymmetric

The economy has seen welcome progress on some fronts in recent months, supported by the cautious approach taken by the Committee and a corresponding easing in financial conditions: The labor market has continued to improve, consumer confidence has remained high, and we have navigated past near-term risks from abroad. But…Brainard says:

“This asymmetry in risk management in today’s new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation.”

Brainard notes that market-based measures of inflation compensation have softened to the downside and have not recovered even though oil prices and the dollar’s exchange rate have stabilized. This is another factor arguing against the case for a preemptive rate hike, she said.

As she shared her opinion, the Dow Industrial average received a boost, hitting a day’s high of over 178 points in the plus column.

Gold had a short lived rally as she spoke. I expect after she’s done, gold will go back to its sell bias mode.

What more can I say? One more case in point on the effects of Fed governors’ comments.

Enjoy the rest of your day.

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