Powell Cuts, Says President Can't Fire Him

Gold hovered around US$2,700 per ounce on Friday after the Federal Reserve reduced interest rates by a quarter point following its two-day policy meeting. The Fed reduced the federal funds target range to 4.50%-4.75% Thursday, marking the second rate cut this year. Fed policymakers cited signs of a cooling labour market as a reason for the adjustment, along with inflation moving closer to the central bank's 2% target, though it remains somewhat elevated.

In his statement, Fed Chair Jerome Powell emphasised that future rate decisions would depend on economic conditions, without committing to a specific trajectory for upcoming rate adjustments. This flexibility signals the Fed's readiness to respond dynamically to economic developments, particularly as inflation and employment trends unfold.

While recent elections signal potential shifts in U.S. foreign policy under the incoming administration, including policies like broad-based tariffs, tax reductions, and possible deportation measures, Powell clarified that these factors are unlikely to affect the Fed’s near-term monetary policy. The Federal Reserve operates independently from the executive branch, focusing its strategies on inflation and employment objectives rather than direct policy changes from the administration.

Powell also slapped back at concerns that Trump could fire him or somehow demote him by saying it would "not be permitted under the law". The U.S. central bank is, in fact, independent and does not answer to the sitting president. Their dual mandate of price stability and maximum employment is their only touted job. Despite this, anyone can research how many booms and busts the U.S. has had after the central bank's implementation in 1913.

One very positive takeaway from this is that the Fed appears to be entering its cutting cycle and does not seem to want to pause based on Trump's incoming policies. Just prior to this, the news was bubbling over with stories of how the Fed may pause and take Trump's policies into account. That did not happen, and the idea was directly shut down. The current rate-cutting cycle indicates an intention to support economic growth by increasing the money supply, which historically strengthens demand for gold as a hedge against currency devaluation. Therefore, as the Fed moves towards further rate cuts and potentially expands the money supply, gold prices may experience upward momentum.

Watch the Ainslie Insights video discussion of this article here: https://www.youtube.com/watch?v=D471lM7WUjg