Warsh's Hawkish Stance Boosts Rate-Hike Odds to 57% Amid Gold Rally

Fed Chairman Kevin Warsh has delivered his clearest hawkish message since taking office at the Jackson Hole meeting, placing prices ahead of employment and hinting at a rate increase next month. This assessment has prompted markets to price in the possibility of a 0.25 percentage point hike at the Federal Open Market Committee meeting on September 15-16, lifting odds from 39.9% to 57.0%, according to the Chicago Mercantile Exchange's FedWatch tool.

Despite rising interest rates in advanced economies, gold prices have continued to climb, with retail investor money flowing into domestic gold exchange-traded funds. The U.S. fiscal deficit reached a record $432.3 billion in July, surpassing $40 trillion in total debt. This has led to concerns over U.S. fiscal health and dollar values.

As government bond yields surge, warnings are emerging of wider volatility in September. Meanwhile, South Korea's financial market, with its high external dependence, could also be shaken by outside shocks. The combined fiscal balance ratio for local governments nationwide has been negative for four consecutive years since 2023, raising the need for tighter fiscal management.