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Optimistic Outlook By Fed’s Dudley Weighs On Gold

Kitco News

(Kitco News) - Gold is not getting much love from the Federal Reserve’s second in command who provided an upbeat outlook on the U.S. economy that continues to support interest-rate hikes.

New York Federal Reserve President and vice chair of the Federal Open Market Committee William Dudley said at a roundtable discussion at  the North Country Chamber of Commerce in Plattsburg, New York  that the economy was in “actually a pretty good place to be" with the unemployment rate at 4.3% and inflation at 1.5%.

Gold has struggled to find momentum following Dudley’s comments, with prices hovering near a four-week low. August gold last traded at $1,249.70 an ounce, down 0.54% on the day.

While Dudley acknowledged the weak price pressures, he shrugged off those concerns, saying that it is only a matter of time before inflation hits the central bank’s target.

"Inflation is a little lower than what we would like, but we think that if the labor market continues to tighten, wages will gradually pick up and with that, inflation will gradually get back to 2%."

Dudley’s comments reiterate the hawkish tone set by Fed Chair Janet Yellen. In her press conference following the Federal Reserve’s decision to raise interest rates by 25 basis points last week, she dismissed low inflation concerns.

“It’s important to not overreact to a few readings,” she said.

During the discussion, Dudley was asked about a flattening of the yield curve as 10-year-note yields and two-year-note yields converge close together. This suggests that the market is skeptical that the Federal Reserve can continue to raise interest rates.

However, Dudley said that pausing the current interest-rate trajectory could put the U.S. economy at risk due to surging inflation.

Last week, the Federal Reserve maintained its outlook for three interest rate hikes this year. The central bank could also start reducing its balance sheet, further tightening monetary policy.

Looking at the current state of the economy Dudley was fairly optimistic in his outlook.

"I am very confident" that the current economic expansion "has quite a long ways to go," he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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