Gold price increase expands! Another Federal Reserve official turns hawkish: Interest rate hikes may be needed this year to curb inflation, current financial conditions remain accommodative

Source: Finnews

Swap market data shows that traders now estimate an 85% probability that the Federal Reserve will raise interest rates once before the end of the year, with yields on US Treasury bonds rising across all maturities.

According to Reuters, Dallas Federal Reserve Bank President Lorie Logan stated on June 3 that signs of strong economic growth and “booming” corporate profits worry her that the Fed may need to hike rates this year in order to bring inflation down to its 2% target. Logan's hawkish remarks were made two weeks ahead of Kevin Warsh’s first meeting as chair of the Fed’s policymaking committee, amid rising inflationary pressures. Her new colleagues are increasingly convinced that, unless the central bank takes further steps to rein in inflation, these pressures will not abate.

Logan noted that although investment in artificial intelligence (AI) continues to boom and stimulates demand, the potential for it to lower inflation through boosting productivity has yet to materialize,

Logan pointed out that although rising energy prices are hitting low-income households particularly hard, consumer spending remains resilient. She stated: “These conditions indicate that monetary policy is not restraining the economy.” At the same time, inflation is rising, driven not only by last year’s higher tariffs and this year’s surge in oil prices due to the Iran war, but also by other factors.

In her prepared remarks for a speech in El Paso, Texas, Logan said that based on several underlying measures of inflation, inflation seems to be trending toward the 2% median rather than returning fully to the Fed’s 2% target. She said, “I am increasingly concerned that higher interest rates may be needed later this year to fully restore price stability and properly balance both sides of the Fed’s dual mandate.”

On June 4, as of press time, spot gold’s intra-day gain widened to 1%, quoted at $4,478.44 per ounce. On June 3 local time, international gold prices and silver prices dropped. At market close, August gold futures on the NYMEX settled at $4,466.90 per ounce, down 1.17%; July silver futures settled at $73.694 per ounce, down 2.46%.

On the same day, the Federal Reserve’s “Beige Book” indicated that rising energy prices are pushing inflation higher. The Fed’s national economic survey report showed that most US regions are seeing slight to moderate growth in economic activity, but consumer spending is diverging and inflationary pressure is building. The report noted that energy costs related to the Middle East conflict are the main driver of higher inflation and have spilled over into sectors such as shipping, packaging, groceries, and fertilizer.

Additionally, CME “FedWatch” indicates: the probability that the Fed will keep rates unchanged in June stands at 98%, with the probability of a cumulative 25 basis point rate cut at 1.6%. The probability of the Fed keeping rates unchanged in July is 90.2%, with the probability of a cumulative 25 basis point rate hike at 8.4%, and a cumulative 25 basis point cut at 1.4%.

Editor: Zhu Henan