Last week, Daniel Tarullo, the Federal Reserve Governor, announced that he would leave the U.S. central bank this spring. What does it mean for the Fed’s policy and the gold market?
Daniel Tarullo has served at the Fed since 2009, being a ‘point man’ for financial regulation and a voting-member of the FOMC. Hence, his unexpected resignation will take away one of the most dovish members of the Committee, which increases the odds of more rate hikes this year, at least going forward from the May meeting (Tarullo is due to leave “on or around April 5”). It should be negative for the gold market in the medium term, as Tarullo was a great supporter of Yellen’s dovish stance on monetary policy.
Moreover, Tarullo’s resignation implies that Trump has now three vacancies to fill (and investors should not forget that Yellen’s and Fischer’s terms expire in 2018). It means that he may quickly influence the Fed by appointing three vacancies on the seven-member board of governors). Nobody knows for sure where Trump’s appointments will fall on the hawk-dove spectrum, but we expect a slightly more hawkish Fed after the personal changes introduced by the new administration when it comes to interest rates. Simultaneously, the U.S. central bank may adopt a softer stance when it comes to the regulatory issues, as Tarullo may be replaced by someone friendlier to banks to enable Trump to pass his financial regulatory agenda. All this does not sound too encouraging for the gold market.
The take-home message is that the Fed Governor Daniel Tarullo is to resign. His decision creates further room for Trump to reshape the Fed’s policymaking staff. Given Tarullo’s dovish stance regarding interest rates and tough approach toward financial regulation, the new Fed should be more hawkish and friendlier for banks. This combination seems to be negative for the yellow metal, which shines when real interest rates are low and the financial sector struggles. However, in the short run, Tarullo’s resignation should not move the market significantly. Traders focus today on Yellen’s semiannual monetary policy testimony before the Senate Banking Committee. Stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Sunshine Profits‘ and Editor