USAGOLD/Peter A. Grant/03-21-17
Gold is extending to the upside, boosted by a falling dollar, stocks and yields. The 61.8% retracement level the decline from the February high — mentioned in this morning’s Snapshot — has been exceeded, lending additional confidence to the rebound that commenced with last week’s Fed decision.
There seems to be mounting concern that the GOP’s Obamacare repeal and replacement plan may stall in Congress, which in turn may derail the broader reflation agenda of the Trump administration. Republicans made significant amendments to the bill yesterday, hoping to shore up support within their own party. Obviously there will be little to no support from the other side of the aisle.
President Trump was on Capitol Hill today encouraging Congress to pass the AHCA so that he and they can move on. The market seems to be losing some of the confidence that built in the wake of Trump’s February 28th speech to a joint session of Congress. If Thursday’s House vote reveals a fractured majority party, quote a bit more of the post-election stock rally could be vulnerable to retracement as trade deals, deregulation, tax reform and infrastructure spending get backburnered until healthcare is sorted out.
FedSpeak from KC Fed President Esther George wasn’t terribly hawkish. She acknowledged that low rates can lead to imbalances, although she apparently didn’t mention anything specifically (like stocks!). Nonetheless, her softer tone and the fact that she tempered balance sheet normalization expectations is probably contributing to pressure on yields and the dollar.
Minneapolis Fed President Neel Kashkari took to Twitter in an #AskNeel segment, where he continued to defend his decision to dissent on last week’s rate hike:
Need to factor in lower neutral real rates. Economy not growing nearly as fast as anyone would like. But higher rates won't help. #AskNeel https://t.co/zjywBktYi9
— Neel Kashkari (@neelkashkari) March 21, 2017
I agree with him, that higher rates is not going to help the economy grow faster. In fact, GDP data for Q4-16 and Q1-17 seem to suggest higher rates are weighing on growth. That shouldn’t surprise anyone.
Kaskari also suggested that inflation is “much more likely” to be below 2%, noting that the Fed has “powerful tools to keep inflation from getting too high.” He also warned that when “inflation takes off, terrible economic outcomes” ensue.
Our own Mike Kosares wrote a stellar piece early in the month with the subtitle: Don’t look now but inflation and a new gold rush might be in our future. It is a must read and is linked below.
Will banks’ excess reserves fuel a new monetary crisis?
The prospect of the banks unleashing from $12 trillion to $36 trillion in currency and easily accessed deposits — presently held as excess reserves with the Fed — on the economy has got to keep a guy like Kashkari up at night . . .
