POWELL BREAKS SILENCE: "U.S. deficit is unsustainable" and High Interests are off the table

[Igor Pereira]

The decision to keep the fees was just the beginning. The real action happened now, during the press conference. Jerome Powell, president of the Fed, has just delivered crucial statements that draw the map for the Dollar and Gold in the coming months.

By Igor Pereira Financial Market Analyst

Powell was surprisingly direct on the US tax situation and the origin of current inflation. Below are the main points you need to know.

Powell was categorical in eliminating fear of further tax increases.

• The Key Phrase: "Rate hike isn't any's base case" (An increase in interest is nobody's base scenario).

• Positioning: He stated that the current stance of monetary policy is "appropriate" to achieve the goals and that they have already moved "a good way" in the rates.

• Future: The decisions will continue to be "meeting by meeting", but the door to discharges is in practice closed.

For the first time, Powell explicitly attributed the persistence of inflation to commercial tariffs, not to overheated demand.

• Diagnosis: "Most of the overrun in inflation is from tariffs, not demand" (Most of the excess inflation comes from tariffs, not demand).

• Perspective: He sees tariffs as a "one-time" price increase and expects the effect to peak and start falling later this year.

• The Dovish Signal: Powell signaled that if you see the effect of the tariffs falling, it will tell the Fed that they can easing policy (loosen policy).

• Data: The core of inflation (Core PCE) excluding the effects of tariffs is running "just above 2%", although the December total should have risen by 3%.

In a moment of rare fiscal frankness, Powell sounded the alarm about American debt.

• The Alert: "US Budget deficit is overwhelming, the soner we work on it the better" (The US budget deficit is unsustainable, the sooner we work on it, the better).

• ExpertFX Analysis: When the head of the Central Bank admits that government accounts are unsustainable, this is a key long-term sign for buying real assets (Gold and Silver) and sale of fiat currency.

• Dollar: Powell maintained the tradition of not commenting on the level of the Dollar, and said there wasn't much data suggesting that foreign investors were doing hegde (protection) of its assets in dollar.

• Government: Effects of Shutdown should be reversed this quarter.

• Lisa Cook case: Powell classified Governor Lisa Cook's Supreme Court case as "perhaps the most important legal case in Fed history."

• Personal Future: He refused to comment on whether he would be in office after the end of his term.

Powell tried to sound neutral, but the lines are clear: he does not want to raise interest and is blaming external factors (tariffs) for inflation.

The verdict:

1. Dollar (DXY): It loses the support of speculation of new heights. Admission to the "unsustainable" deficit is structurally negative for the currency.

2. Gold (XAU/USD): With the confirmation that there will be no highs and the tax concern exposed, the path of less resistance remains upwards.

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