CNBC/Jeff Cox
The Fed can fight inflation, but it may come at the cost of future growth

One of the main reasons Federal Reserve officials don’t fear inflation these days is the belief that they have tools to deploy should it become a problem.

Those tools, however, come with a cost, and can be deadly to the kinds of economic growth periods the U.S. is experiencing.

Hiking interest rates is the most common way the Fed controls inflation. It’s not the only weapon in the central bank’s arsenal, with adjustments to asset purchases and strong policy guidance also at its disposal, but it is the most potent.

It’s also a very effective way of stopping a growing economy in its tracks.

The late Rudi Dornbusch, a noted MIT economist, once said that none of the expansions in the second half of the 20th century “died in bed of old age. Every one was murdered by the Federal Reserve.”

In the first part of the 21st century, worries are growing that the central bank might become the culprit again, particularly if the Fed’s easy policy approach spurs the kind of inflation that might force it to step on the brake abruptly in the future.

“The Fed made clear this week that it still has no plans to raise interest rates within the next three years. But that apparently rests on the belief that the strongest economic growth in nearly 40 years will generate almost no lasting inflationary pressure, which we suspect is a view that will eventually be proven wrong,” Andrew Hunter, senior U.S. economist at Capital Economics, said in a note Friday.

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CNN Business/Matt Egan
The Fed is yanking away big banks’ ‘get out of jail free’ card

Federal regulators said Friday they won’t extend a Covid relief provision granted to big banks, dashing Wall Street’s hopes for an extension.

JPMorgan Chase (JPM), Wells Fargo (WFC) and other big bank stocks retreated on the news, helping to drive the Dow down as much as about 300 points, or 1%. US Treasury yields also crept higher, weighing on the broader markets.

Last spring, when the economy and markets were in chaos, the Federal Reserve handed a sort of “get out of jail free” card to America’s big banks: It loosened leverage rules that JPMorgan, Bank of America (BAC) and other large lenders must abide by.

But on Friday, US regulators said they would allow the leverage exemption to expire at the end of the month, explaining that the “temporary change was made to provide flexibility” to banks — allowing them to keep providing credit to families and businesses during the pandemic.

The Fed also announced it will attempt to rework the leverage rule to make sure it remains effective in the current environment.

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Kitco/Anna Golubova
Gold price is ‘back on the field’ after ‘being benched,’ signs point to more gains – analysts

Gold is back on investors’ radar as prices look to end the week on a strong technical note despite another spike in bond yields.

After trading near three-week highs following the Federal Reserve’s dovish statement, gold managed to ignore the 10-year U.S. Treasury yield rising to its 14-month high of 1.75% on Friday. At the time of writing, April Comex gold futures were trading at $1,742.60, up more than 1% on the week.

The Fed revised up its 2021 GDP and inflation expectations to 6.5% and 2.4%, respectively, but stressed that rates would remain near zero through 2023. Fed Chair Jerome Powell continued to refer to any price spikes as transitory while ignoring rising yields.

On Friday, the Fed threw another curveball at the markets, as it declined to extend a temporary bank leverage rule exemption that expires at the end of the month. The rule excluded U.S. Treasuries and central bank deposits from the “supplementary leverage ratio,” which helped to encourage bank lending during the pandemic. In response, yields continued to rise, and the stock market sold off.

In light of this, gold had a decent performance, holding above $1,730 an ounce, while equities and oil were down. Blue Line Futures chief market strategist Phillip Streible told Kitco News.

“Gold as an asset class has moved up on the investors’ lists. The precious metal was irrelevant for many a few weeks ago; there was more action in other markets. But now, it moved itself back up. Gold is a player on the field again after being benched for a while,” Streible said.

Some investors are starting to look at gold amid this market volatility, he added.

Gold has been trading well relative to other commodities as well, including silver and copper, said LaSalle Futures Group senior market strategist Charlie Nedoss.

“The 10-day moving average is starting to rise, and I anticipate a close above the 20-day for the first time since January 7,” Nedoss said, adding that these are great signs for gold.

Also, geopolitics is back on the radar when it comes to trading gold, analysts pointed out. Top U.S. and China officials clashed during the first high-level meeting with Joe Biden’s administration.

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