Powell Says "No Inflation Increase," Yet Dollar Weakens and Gold Strengthens

Gold Soars to $1974 per Ounce
Dollar Index Hits 93.18... Lowest Level of the Year
Chairman Powell Blocks Inflation Risks but Dollar Remains Strong

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] After the Federal Reserve (Fed) maintained the zero (0) interest rate, the value of the dollar fell and gold prices soared. Despite Fed Chair Jerome Powell dismissing the possibility of inflation, the market trend could not be reversed.

On the 29th (local time), the dollar index, which shows the value of the dollar against major currencies, fell to 93.18 after the Fed's interest rate decision, then slightly recovered the decline, recording 93.42, down 0.29% from the previous day.

Gold prices continued their upward trend. Right after the decision to keep rates unchanged, gold prices expanded their gains, touching $1,974.90 per ounce, and are currently trading at $1,958.80, up 0.73%.

The dollar weakness and gold strength widened after the Fed's statement but slightly narrowed after Fed Chair Jerome Powell's press conference, though the direction did not change.

During the press conference, Chair Powell said, "I do not think inflation will occur soon." This was interpreted as a warning to the market, which had been betting on rising gold prices and falling dollar value, that the Fed would maintain zero interest rates for a long time even if inflation rises above 2%.

He stated, "This is a shock of slowing inflation. We are seeing core inflation drop to 1%. I think we will have to fight downward pressure rather than inflationary pressure for a while."

The Fed assessed in its statement that "economic activity and employment have somewhat recovered in recent months but remain significantly below the levels at the beginning of the year," and "the public health crisis is severely weighing on economic activity, employment, and inflation in the short term and poses considerable risks to the economic outlook in the medium term."

The Fed further stated, "We expect to maintain this target range for the federal funds rate until we are confident that the economy has weathered recent events and is on track to achieve maximum employment and price stability," and said, "We will act appropriately to support the economy."

It also reaffirmed its commitment to continue quantitative easing by stating that it will increase holdings of Treasury securities and mortgage-backed securities (MBS) at least at the current pace over the coming months to support credit flow to households and businesses.

Fed Chair Jerome Powell also said at a virtual press conference after the announcement, "The path ahead for the economy is unusually uncertain," and forecasted, "Full recovery is unlikely until people are confident it is safe to engage in a broad range of activities," promising to use all available tools to help economic recovery. He reiterated the need for support not only from the Fed but also from the government and Congress for economic recovery.

According to the Associated Press, experts expect that the Fed is likely to provide conditions for interest rate hikes at the September FOMC meeting.