Fed Split on Interest Rate Hike, Gold Price Rises as Credibility Concerns Grow

Former St. Louis Fed President Jim Bullard believes the Federal Open Market Committee is nearly evenly split on whether to raise interest rates next month, with a vote possibly falling 10-9 either way. He made this comment in an interview with Kitco News.

Bullard, who served on the committee for 15 years, noted that many undecided members could be persuaded in either direction. This would indicate that the committee is closely divided over the decision to raise rates.

Market pricing shifted after Fed Chair Kevin Warsh told the Kansas City Fed's Jackson Hole symposium that the central bank bears responsibility for 65 months of sustained elevated inflation. Following his speech, the probability of a September rate hike rose from roughly 36% to about 60% on CME's FedWatch tool.

Bullard warned against treating the September meeting as a binary event, saying that a hold could still be hawkish if the committee signals a move at the October or December meetings. The September meeting includes a dot plot, which provides forward guidance on the expected path of the federal funds rate through the end of 2026.

Bullard also discussed gold prices, stating that it remains an indicator of possible lack of faith in the Fed, and that a rising gold price could signal eroding credibility. He noted that foreign central banks have been net buyers of gold for nearly two decades, holding over a billion ounces, and that some have been diversifying away from U.S. Treasuries.