Gold prices back near session lows as Powell strikes hawkish tone, saying the central bank will maintain restrictive policy stance for some time

Gold prices have fallen to session lows as Federal Reserve Chair Jerome Powell strikes an expected hawkish tone in his much-anticipated speech at Jackson Hole, Wyoming.

In his speech, Powell reiterated that inflation remains the biggest threat to the economy and the central bank is committed to bringing consumer prices back down to its target of 2%.

"Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy," he said in his remarks during the central bank symposium.

The gold market continues to hold support above $1,750 an ounce; however, it is struggling to attract new bullish momentum as markets expect to see further rate hikes.

Powell noted that rising interest rates continue to slow growth; he added that those risks are outweighed by inflation.

"While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain," he said. "Without price stability, the economy does not work for anyone."

Although the U.S. economy is starting to feel the effects of rising interest rates, Powell said he continues to see pockets of strength.

"While the latest economic data have been mixed, in my view, our economy continues to show strong underlying momentum. The labor market is particularly strong, but it is clearly out of balance," he said.

Powell also recognized that while the central bank's monetary policy is slowing the economy, it is also bringing down inflation; but he added that more work needs to be done.

Although Powell has signed that the central bank will maintain its current aggressive tightening path, some analysts have said that his comments haven't provided much forward guidance for markets.

The CME FedWatch Tool shows markets are still evenly split over whether the central bank will raise the Fed Funds rate by 50 or 75 basis points next month.

Adam Button, chief currency strategist at Forexlive.com, said that Powell was not as hawkish as he expected.

"I don't see the hawkish bent. It's what I was looking for, no signal on September and a warning that the Fed won't U-turn next year. That's exactly what other Fed officials have been saying. The talk about pain and whatnot is a bit frightening, but there's a lot of nuance there," he said.

Avery Shenfeld, senior economist at CIBC, also said that Powell's speech didn't reveal anything new.

"The speech was extremely short, with nothing really new from our perspective," he said.

By Neils Christensen

For Kitco News

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