GOLD OUTLOOK UNCHANGED AS TRUMP APPOINTS POWELL TO CHAIR

United States President Donald J. Trump somewhat unpredictably did the predictable by naming Jerome Powell the new Chair of the Federal Reserve. Fond of adding reality show suspense to his appointments, Mr. Trump did exactly what insiders and pundits foresaw by picking the investment banker from a short list that included current Chair Janet Yellen and close White House economic adviser Gary Cohn.

Market reaction to the selection was hard to gauge, coming as it did on the same day House Republicans introduced its long-awaited legislation to overhaul the U.S. tax code. The Tax Cuts and Jobs Act proposes chopping the corporate tax rate from 35 percent to 20 percent, cutting other business taxes, and eliminating the estate and alternative minimum taxes. These measures would add an estimated $1.5 trillion dollars to the United States debt.

WHAT CHANGES?

Jerome Powell is largely regarded as a mirror image of his predecessor, only from the GOP side. In fact, he voted for every Fed policy decision under Yellen since he was appointed by Barack Obama in 2012. That includes the FOMC’s determination to raise interest rates slowly but steadily. A recent survey (Evercore ISI) of investors showed a majority believe Mr. Powell will actually kick rates higher than Yellen would have. Otherwise, the incoming Chair has already indicated he wants to preserve the Fed’s core reforms on bank regulation, a position at odds with the White House’s preference for deregulation.

Just one day previous to the switch at the top, the Fed announced it had decided, for the present, to leave the nation’s benchmark interest rate unchanged, at 1 – 1.25%, by unanimous vote. A third rate increase this year may have been delayed by economic disruptions caused by the violent hurricanes that battered the country this autumn. Otherwise, the Board’s view of the U.S. economy remains one of slow (less than the 2% target) but steady growth and low inflation. Virtually all observers (close to 97%) expect that quarter-point rate bump to come in December, in keeping with this perspective.