Powell's Hawkish Comments Spark Rate Hike Bets and Gold Sell-Off
US Federal Reserve Chair Jerome Powell's speech at Jackson Hole has sent shockwaves through financial markets, pushing up rate hike bets and sending gold prices lower. In his debut address, Powell emphasized that inflation is the Fed's top priority and that underlying trends have not improved.
Powell was clear in stating that officials will need to see firm conviction that inflation is converging sustainably towards target before easing monetary policy. He also reaffirmed the Personal Consumption Expenditures (PCE) price index as the Fed's preferred measure of inflation, and noted that interest rates are the primary tool for achieving its mandate.
Markets reacted swiftly to Powell's hawkish comments, driving up US dollar prices and bond yields while repricing policy expectations. The CME's FedWatch Tool now assigns a 59.8% peak probability to a September rate increase, with room for a subsequent move before year-end.
Gold prices have suffered as a result of the rate repricing, falling into bear territory and putting it at risk of further declines. However, the metal's technical and macro backdrop has improved in recent weeks, potentially setting it up for gains in August.