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'Higher and longer' 2% target is fully embraced by central banks worldwide

Commentaries & Views

We need to see more softening in the labor market according to Chairman Powell. Central banks worldwide vowed to continue to raise interest rates to combat high and persistent core inflation levels. This as some top economic countries see GDP greatly contracting. GDP levels have fallen to 1.2% in the U.S. and Japan and 0.6% in England and the Eurozone.

“Although the policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough.”

According to Powell, we can expect more rate hikes and elevated levels for longer until the high core inflation level diminishes with the data confirming that. This monetary policy is sharded by major central banks including the ECB, Bank of England, and Bank of Japan.

Speaking at the European Central Bank’s annual forum in Sintra Portugal Chairman Powell, the head of the ECB Christine Lagarde, the head of the Bank of England Andrew Baile, and the head of the Bank of Japan Kazuo Ueda all spoke in a unified voice with the collective goal of reducing inflation to a target level of 2%.

Chairman Powell signaled that two consecutive 25 basis point rate hikes are not off the table. According to the CME’s FedWatch tool, there is a 79.4% probability of the first of two hikes in July.

This pressured gold pricing lower over the last three consecutive days taking the most active August futures contract to a low of $1911.40. This is the lowest value gold has traded at since March.

As of 5:37 PM gold futures are currently fixed at $1916.50 after factoring in a decline of $7.30 or 0.38 %. Dollar strength was a large component of today’s decline with the dollar gaining 0.53% fixing the index at 102.665. Silver futures gave up nearly a full percentage point today and are currently fixed at $22.74.

Traders have factored in the renewed and continued hawkish stance of the Federal Reserve, limiting selling pressure. However, dollar strength accounted for a $9.20 decline in spot gold pricing with normal trading increasing gold’s value by $2.90 per ounce. Currently, spot gold is fixed at $1907.40

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