Powell did not disappoint

As we had suspected earlier, the dollar fell sharply, while gold and stock index futures rose as Powell started delivering his speech at the Jackson Hole Symposium. Then things reversed sharply as investors took profit amid “buy the rumour, sell the news” type of a reaction. At the time of writing, though, futures were on the rise again and the dollar was easing off its highs…

Initially, investors loved the news the Federal Reserve has rolled out average inflation targeting of 2% and the fact that it will be putting more emphasis on 'broad and inclusive' employment. The new approach means inflation could rise above 2% for some time and will not necessarily lead to monetary tightening.

The FOMC has basically given itself the freedom to use its discretion rather than following any hard rules when it comes to deciding on monetary policy.

So, to achieve the 2% average inflation over time from current levels, monetary policy will likely remain loose much longer than would have been the case previously.
 
However, judging by the reaction that followed, when the dollar rebounded sharply, some market participants clearly felt the new approach will bring about more uncertainty rather than transparency. Markets usually don’t like uncertainty.

However, the bottom line is that the Fed will keep its policy extraordinary loose for some time yet. As a result, I wouldn’t be surprised if the dollar resumes lower again, pushing gold and silver up.