Today a news story revealed that earlier this year the Trump Administration had considered demoting Fed Chairman Jerome Powell to strip him of his powers to control interest rates. It's important to note, however, that this was being considered six months ago, and that Mr. Powell still has full control of interest rate policy. What's interesting here is that the Fed has recently switched to a "patient" attitude about raising interest rates and may now be even more aggressively dovish as it considers an interest rate cut (is resurrection of QE - quantitative easing - just around the corner?). Regardless of whether Mr. Powell is taking Trump's advice or not, the Fed's attempts to avert an equity market crash through more rate cuts is probably not a good thing in the long-term.
Today also brings us news that ECB (European Central Bank) President Mario Draghi is also prepared to support the eurozone economy with its own interest rate cutting, possibly as early as next month, as well as more bond buying (QE) if necessary. Not unexpectedly, Draghi's statement sent the euro's value down and boosted the U.S. dollar. Mr. Trump was not happy with Draghi's statement as he feels the EU is trying to devalue the euro to gain an unfair global trade advantage. The reason I am mentioning all of this is because we could now be seeing the start of a "currency war" on top of Trump's "trade wars" with a race between the U.S. and Europe to lower their currency values. If this does unfold, it would certainly help drive a bullish rally in the precious metals.
Will this "currency war" factor now give the Fed more incentive to announce a rate cut on Wednesday? Maybe, but many analysts still feel that the first rate cut will be put off until next month. Draghi's dovish cooing is lifting global equity markets today, and our major stock indices (DOW, S&P 500, NASDAQ) are all approaching their all-time highs. Nevertheless, we are still in a strong reversal zone. If the Fed disappoints with no rate cut, we could see a top followed by a strong reversal down (see yesterday's blog). We are going to stay on the sidelines until after the Fed makes its policy statement on Wednesday.