Gold prices fell slightly on Wednesday, extending the decline from the previous session, as investors interpreted the comments from Federal Reserve Chairman Jerome Powell to mean that the US may raise interest rates more frequently than anticipated this year.
Traders were on edge during Powell's second day of Congressional testimony after his comments on Tuesday about the strength of the USA economy opened the door to speculation that the Fed plans to quicken the pace of monetary tightening, a move investors worry could derail growth. In December, the Fed signaled three rate hikes for 2018 but improved economic data since then suggests four hikes could be in store.
Because of Powell's optimistic tone on the USA economy, the dollar was able to penetrate the 90 handle. The Nasdaq fell 92 points, or 1.3 percent, to 7,180.
Though the current 4.1 percent unemployment rate was "at or near or even below" estimates of the full employment rate, "we don't see any evidence of a decisive move up in wages". He says the modest increases in wages also showed that there is still slack in the job market.
USA gold futures were flat at $1,318.50 per ounce. Still, "inflation remains below our 2 percent longer-run objective".
Traders of federal funds futures trimmed bets on a fourth rate increase this year after Trump's announcement.
Powell is speaking before the Senate Finance Committee later on Thursday.
But he said at this point the Fed could continue "to gradually raise interest rates".
"There was not much couching of the growth story".
Worries about potentially higher rates and inflation have reintroduced markets to volatility following their unusually calm run in 2017 and early this year.
The yield on the 10-year Treasury note was 2.86% at 10.42am in NY, compared to Tuesday's 2.92% peak. US stock indexes fell and the dollar was stronger against a basket of currencies.
The Fed chair boosted his economic outlook earlier this week during a House Financial Services Committee.
Much of the questioning on Tuesday amounted to a review of where the Fed stands on financial regulation.
Meanwhile, the inflation data in the euro zone blemished expectations that the European Central Bank will ease up on its monetary stimulus.
During the same testimony, Powell commented on the economy more broadly.
While Powell tried to temper remarks he made on Tuesday that raised concerns about the potential for four interest rate hikes this year rather than the Fed's forecast of three, Dudley was a bit more pointed and said four rate hikes would be "gradual".
Pressed by some Democratic lawmakers about the impact of inequality on the economy, the gap in unemployment rates between whites and blacks, and on the economic implications of stricter immigration, Powell largely recited the Fed's commitment to its goal of maximizing employment with stable prices.
Fed officials have been patiently waiting for paychecks to grow.
"Our part of it is to take seriously our obligation to achieve maximum employment". "I wouldn't want to prejudge that new set of projections", Powell said.
Powell will continue his testimony later in the day.
"I am committed to clearly explaining what we are doing and why we are doing it", Powell said.
Stocks gyrated Thursday as the new Federal Reserve Chairman, Jerome Powell, faced his second day of grilling before Congress. Apple, the most valuable USA company, got 63 percent of its sales from outside the United States in its latest fiscal year.