Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Jerome Powell vs. Janet Yellen

Interest-Rates / US Federal Reserve Bank Dec 09, 2017 - 03:27 PM GMT

By: Arkadiusz_Sieron

Interest-Rates

As expected, Donald Trump nominated Jerome Powell as the next Federal Reserve Chair. He is often perceived as a merely Republican version of Yellen. But is that really the case? Let’s analyze in a more detailed way what impact on gold Powell’s term as the head of the U.S. central bank would mean for the gold market.


The choice of Powell was welcomed by financial markets, as he is believed to continue of Yellen’s cautious monetary policy. Indeed, he never dissented with her at the FOMC. Does it mean that he is just a “GOP’s answer to Janet Yellen”? Well, in a way, yes, as the Fed headed by Powell will likely stay on track to gradually raise interest rates and to unwind its balance sheet. However, the fact that Powell voted with Yellen does not mean that he is her male and Republican clone. The most important differences between them are presented in the table below.

Table 1: Yellen vs. Powell’s Scorecard

But let’s be serious: there are really a few important distinctions which investors should be aware of. First, Powell may be a bit more hawkish than Yellen. For example, he has been a skeptic of the third round of quantitative easing started in 2012. And Powell may be less focused on the stock market’s performance (or the so-called Greenspan’s put). In January’s speech in Chicago, he said:

“Overall, I do not see leveraged finance markets as posing undue financial stability risks. And if risk-taking does not threaten financial stability, it is not the Fed's job to stop people from losing (or making) money.”

Moreover, with the growing economy, tight labor market, and without financial stability risk on the radar, he can afford to be more hawkish. Hence, Powell’s leadership might be worse than Yellen’s for the gold market – not necessarily because of differences in Powell’s nature, but due to the distinct macroeconomic environment in which he would have to act.

Second, Powell differs is his view of financial regulations, being much more in line with Trump on this issue. He generally supports the Dodd-Frank reform, but believes that the Volcker Rule should be re-written to ease the regulatory burden on smaller banks. Indeed, Powell called some parts of Dodd-Frank “unnecessarily burdensome.” And in an October’s speech at the New York Fed, he said that “more regulation is not the best answer to every problem.”

The softer approach toward financial regulations should support the financial institutions, which should be negative for the yellow metal, which can be perceived as a hedge against financial turmoil or a safe-haven asset purchased when banks struggle.

Third, Powell will be the first chairman without a Ph.D. in economics since Paul Volcker. Surely, he has a long resume of experience in both the private sector and government, but it would be a precedent for an investment banker to lead the most powerful central bank in the world.

The impact of Powell’s different educational background on the gold market is difficult to assess. On the one hand, he lacks deep understanding of monetary policy and sophisticated academic reasoning. Hence, Powell may be less prepared to sail the Fed through the next crisis if it hits under his leadership (which could be positive for the yellow metal).

On the other hand, his corporate background may actually be an advantage compared to academic mumbo-jumbo of secular stagnation, potential GDP, Philips Curve, natural interest rates and so on. Both Greenspan and Bernanke held a Ph.D. in economics, but it did not prevent the world from the Great Recession (and it might actually have contributed to it, as the focus on the CPI, which resulted from the academic models, prevented Bernanke from noticing the housing bubble). Such a realistic and pragmatic approach could potentially be better for the economy, and therefore negative for the gold market.

Anyway, the issue of Powell’s educational background may be not so important after all. He would not steer the U.S. central bank alone. Instead, the FOMC is a collegial body – and Powell will be likely to create compromise among its members. Here we come perhaps to the most important thing. By February, when Powell starts his term, Trump may fill other vacancies at the Fed as well. As a reminder, after Yellen’s resignation, there are four vacancies in the Board of Governors. This is why it is likely that the composition of the FOMC in 2018 will move slightly from the dovish to the hawkish side, especially if Taylor joins the Committee. We do not expect a revolution, but the hawkish camp will probably strengthen its position next year, which is clearly not good news for the gold market in the medium-term. The rotation among the Fed regional presidents confirms our view. Just look at the table below. There are many unknowns due to a few vacancies (there are four slots at the Board itself) but the FOMC would be more hawkish next year – that is for sure.

Table 2: Composition of FOMC in 2017 and 2018.


To sum up, Powell was picked up by Trump as the next Fed chair. He is expected to continue a gradual tightening policy. However, he may raise interest rates slightly faster than Yellen. Although the pace would not be extreme, a more hawkish policy would be a headwind for gold prices. And the next year’s FOMC composition is likely to shift slightly toward the land of the hawks. A lot will obviously depends on the future condition of the economy, but the more hawkish Board of Governors, when analyzed in isolation, seems to be a fundamentally bearish factor for the gold market.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules