What Tools Does the Fed Have Left and How Could They Affect the Gold Market?

Although the U. S. economy is currently expanding, we cannot rule out the possibility of a significant slowdown in the next few years. Some analysts argue that the Fed would be out of ammunition during the next crisis. Is that true? ‘Not necessarily,’ as it turns out – the whole issue is a bit more complicated. We will now analyze what monetary weapons could the Fed use to stimulate the economy when the next recession strikes. The table below presents a short summary of available tools.
Table 1: The summary of Fed’s potential monetary tools during next recession

First and most obvious, the U. S. central bank could drop any plans to raise interest rates further or even to cut them. However, with the federal funds rate still close to zero, it would not relieve the economy significantly. The change of the Fed’s stance should be positive for the shiny metal, as gold prices have recently been under downward pressure from the expected monetary tightening and accompanying greenback’s strength.

This post was published at GoldSeek on Friday, 7 October 2016.