Powell’s Gloomy Tone Lifts Gold to New Highs, While Risk Assets Crumble

Fed Chair Jerome Powell, speaking at the Economic Club of Chicago on April 16, maintained a cautious outlook on the economy, signaling that the Federal Reserve will keep interest rates on hold amid rising uncertainties. He emphasized the need for clearer economic signals before considering any policy adjustments.

Despite ongoing trade tensions and geopolitical risks, Powell noted that the U.S. economy remains generally resilient. The labor market is operating near full employment, and while inflation has cooled slightly, it still sits above the Feds 2% target. He also warned that recent tariff policies under the Trump administration may have a greater-than-expected economic impact, further clouding the outlook.

1. Balancing Inflation and Growth

Tariffs could contribute to short-term inflation spikes while simultaneously dampening economic growth, posing a dual challenge to the Feds mandate of maximum employment and price stability. Powell acknowledged that if both inflation and unemployment rise, the Fed will have to carefully weigh maintaining high rates to fight inflation against cutting rates to support growth.

Looking solely at CPI data, both headline and core inflation figures for March suggest a continued downward trend, thanks to the restrictive rate environment. Given the uncertain inflationary impact of new tariffs, Powell's decision to remain on hold appears prudent.

(Chart 1: U.S. Consumer Price Index — Source: MacroMicro)2. Market Reactions and Fed Policy Stance

Markets reacted sharply to Powells remarks, with the S&P 500 falling more than 2%. He made it clear that the Fed will not intervene merely due to market volatility, reaffirming that the current policy stance is moderately restrictive and appropriate for now.

The latest Fed balance sheet data shows reserve balances remain above $3 trillion, suggesting no systemic liquidity risk. This removes any immediate need for the Fed to consider rate cuts or balance sheet expansion.

(Chart 2: Federal Reserve Balance Sheet — Source: Federal Reserve)3. Looking Ahead

Powell reiterated the Feds commitment to monitoring key data—especially inflation and labor market indicators—to determine whether policy adjustments are warranted. The current stance, he said, gives the Fed time and space to assess economic developments and strike a balance between inflation control and employment support.

Overall, Powells message was one of caution and patience. He stressed that without clearer signals, the Fed will not deviate from its current course. Notably, the 10-year U.S. Treasury yield has declined to 4.30%, well below the Treasury's 4.50% “stress threshold.” With basis trade de-leveraging largely behind us, liquidity risks in Treasuries appear contained—removing urgency for any QE measures.

(Chart 3: U.S. 10-Year Treasury Yield — Source: CNBC)

While investors had hoped Powell might deliver a dovish pivot to boost equities, his steadfast stance—combined with geopolitical tensions—has instead triggered a broad selloff across risk assets. Investors are reducing exposure in search of safety.

That said, we believe today‘s sellers are tomorrow’s buyers. As in 2018, 2020, and 2022, temporary downturns may eventually prove to be historic buying opportunities.

Gold Technical Outlook

Intraday View:

The current price divergence is extended, with a large bullish candle indicating a potential overbought signal. A pullback appears likely.

Trading Strategy:

With low liquidity in the Asian session, wait for a confirmed hourly trend reversal before entering short positions. Set stop-loss at the intraday high.

Technical Commentary:

Yesterday, we advised against shorting prematurely. Now, with gold trading $70 above its 5-day moving average, profit-taking pressure could emerge during the Asian session, increasing the likelihood of a short-term pullback.

• Support: $3,204

• Resistance: $3,357

Risk Disclaimer:

The views, analyses, research, prices, or other information provided above are for general market commentary only and do not constitute investment advice. All viewers should assess their own risk tolerance and act cautiously.