Thursday, May 19, 2016

Gold And Real Interest Rates: "Fed’s Dudley: June is Definitely a Live Meeting"

Gold continues the decline begun yesterday with the release of the very hawkish Fed minutes:
From Economic Calander:
New York Fed President Dudley stated on Thursday that the June FOMC meeting will definitely be a live meeting and there was no attempt to push against the increased market speculation over a June rate increase. Despite some caveats, the comments indicate the FOMC core is very seriously considering a June hike, which will underpin the dollar as Fed futures will need to adjust further.

In prepared remarks on Thursday, he reiterated that the Fed’s policy stance is data dependent, but made no significant references to the economic outlook or monetary policy. In the Q&A session, Dudley also commented that a rate hike in June or July was reasonable if his economic expectations are met given that the labour market is tighter and that most conditions for a rate increase have been met. He also commented that there was a strong feeling within the FOMC that markets had definitely under-estimated the tightening probability.

He did enter a get-out clause with comments that the Fed would not lose credibility if forthcoming data did not support the case for a rate hike.

Dudley tends to have a slightly dovish stance on the FOMC committee, although his thinking is usually aligned closely with Chair Yellen.

Following relatively hawkish comments from regional Fed Presidents Williams, Lockhart and Kaplan on Tuesday and the more hawkish than expected minutes from April’s meeting on Wednesday, the hawkish flow continue from Richmond Fed President Lacker who continued to push for a rate increase in the short term and looks certain to vote for a hike in June....MORE
If interested, we have quite a few of our 'real rates and gold' posts* linked in April's "Why Is Gold Up In 2016? It's Probably Just Negative Real Interest Rates In the U.S." which was written with the 10-year yielding 1.72%.
Today it is at 1.85%. Combined with the core CPI released on Tuesday at 2.1%, real rates are still supportive of gold at negative .25% but any further rise in bond yields could have the real rate in positive territory pretty quick.

"Gold Tanks After Fed Minutes"
* e.g.
Aug. 22, 2013
I have become very reluctant to link to most economist's blogs. More and more it seems economists are nothing more than wannabe politicians who don't have the guts to run for office and who, instead, gussy themselves up in a bit of math before finding an echo chamber to preach their politics to.
Life's too short.

However, here's a guest post by a student who seems not to have picked up the playground-squabble tone that so much econ writing exhibits these days.

Plus, for me anyway, it just oozes confirmation bias....