Yellen and Trump Comments Send Dollar on Wild Ride

Only a few days after President-elect Trump’s comments talking down the dollar, Fed Chairwoman Janet Yellen has sent the greenback rebounding today with strong hints of multiple interest rate hikes “a few times a year” for the next few years.

Yellen and the FOMC raised the federal funds rate by a quarter point at December’s meeting where the Fed Chair said rising employment levels and edging inflation have lead to “considerable progress” for the economy. In response, gold prices fell from $1,161.84 to $1,141.77 as investors made moves into the greenback. At that time, Yellen had indicated that the committee believed a series of rate increases would be appropriate if economic trends stayed within acceptable ranges.

Today’s comments reinforced the same strategy, sending the dollar upward and gold downward with its largest one-day loss of the year, according to MarketWatch. But the yellow metal continued to hold above $1,200 for much of the afternoon.

“As of last month, I and most of my colleagues – the other members of the Fed board in Washington and the presidents of the 12 regional Federal Reserve banks – were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3%,” Yellen said in her speech.

With their typical bipolar reaction, the markets have begun pricing in currencies and commodities based upon the one-off statements by Trump and Yellen. Some are predicting these recent statements will be the beginning of a fierce battle between the soon-to-be commander in chief and the seasoned Fed Chair over monetary policy.

The Fed is posturing the same way it did last year when it predicted GDP growth to be 2.4%. It’s a typical Fed move to overestimate economic growth, only to revise their numbers downward consistently. Fed predictions tend to understate inflation and overstate growth. Even with suspect numbers, the official GDP released later this month is likely to show economic growth below 2%.

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