Powell Presumably Dovish: Silver Prices Rise in Response

Traders interpreted Powell’s speech at Brookings Institution as having dovish flavor, boosting silver prices along the way.

On Thursday (November 30, 2022), Jerome Powell gave a speech on inflation and the labor market at Brookings Institution. It was his last public appearance before the December FOMC meeting, so let’s analyze it, looking for clues for the future monetary policy.

For me, Fed Chair didn’t say anything new. He reiterated that more interest rates hikes are necessary to achieve a level that would be sufficiently restrictive to get inflation back to 2 percent and that this level would be higher than 4.6%, i.e., the level that the FOMC members believed to be a terminal rate while creating the September dot-plot . What’s more, the federal funds rate could stay at this level for some time as risk management cautions against prematurely loosening the monetary policy :

we need to raise interest rates to a level that is sufficiently restrictive to return inflation to 2 percent (…) As our last postmeeting statement indicates, we anticipate that ongoing increases will be appropriate. It seems to me likely that the ultimate level of rates will need to be somewhat higher than thought at the time of the September meeting and Summary of Economic Projections.

Wall Street Interprets Powell’s Speech as Dovish

On the other hand, Powell also reiterated that because of the lags of the monetary policy, it would be appropriate for the Fed to slow down with the pace of interest rate hikes. In other words, the Fed doesn’t want to overtighten and then be forced to cut interest rates quickly. He noted that such a deceleration could start as soon as December :

Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt. Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.

However, the financial markets decided that Powell’s remarks were relatively dovish . The stock market has risen in response. And the odds of the 50-basis points hike at the December meeting increased from 66% before the speech to 77% after the remarks, according to the CME FedWatch .

Implications for Silver

Silver prices also rose in a response to Powell’s remarks. As you can see, the price of silver jumped above $22. Although we could see some corrections on the way, I bet that 2023 will be better for the silver than the current year.

In addition to crypto scandals that could support the precious metals, silver should be boosted by the receding inflation and a less hawkish Fed. Once the U.S. central bank stops raising rates, there should be a bullish market for silver. It goes without saying that the likely recession and cuts in the federal funds rate will only add fuel to the rally in silver .

Arkadiusz Sieron, PhD