Higher rates tend to weigh on gold, since the metal pays its holders nothing and struggles to compete with yield- bearing assets like Treasurys when borrowing costs rise. The Fed can’t directly increase productivity growth, which comes from companies finding new ways to produce more goods and services with the same of workers.
Advertisement
Investors had raised bets earlier this week for a rate increase this year after two Fed policymakers said the economic stars now appear to be aligning despite weak USA growth in the first half of 2016.
“The market has been trying to read into whether Fed official comments for a September rate hike will be repeated by Janet Yellen next week but there is no clarity yet”, Saxo Bank senior manager Ole Hansen said.
Dudley said the second-half GDP growth would be stronger than the 1% annual growth rate of the first six months of the year.
However, yields on longer-dated Treasuries retreated after the minutes of the 26-27 July meeting were published.
Some Fed members “judged that another increase in the federal funds rate was or would soon be warranted”. “The market has become range-bound, because it’s just waiting for actual news to really give more direction toward whether the rate will increase next month or at the end of the year”. “Today’s minutes of the Fed’s July policy meeting could be more hawkish than market expectations”, said Tomoaki Shishido, fixed income strategist at Nomura Securities. They believe there’s a 45% chance of a rate hike in December, up from 35% last Friday, according to CME Group.
Seventeen Fed policymakers participated in the July meeting, 10 of whom had a vote.
As an economist (I am chief economist at jobs site Indeed.com), I am looking beyond the next rate hike, which should come at some point this year.
St Louis Fed President James Bullard on Wednesday said that the central bank should be patient in raising interest rates with economic growth low.
“They saw little evidence that inflation was responding much to higher levels of resource utilization and suggested that the natural rate of unemployment, and the responsiveness of inflation to labor market conditions, may be lower than most current estimates”.
Advertisement
Investors will be paying close attention to a speech that Yellen will give on August 26 to an annual conference of central bankers in Jackson Hole, Wyo., for any further clues about the Fed’s timetable for a rate hike.
