On Sunday, Fed Vice Chairman Stanley Fischer delivered a speech entitled “Remarks on the U.S. Economy” at the Aspen Institute in Aspen, Colorado. What can we learn from it?
Fischer’s remarks may provide hints what to expect from Yellen’s speech in Jackson Hole this Friday. Although he spent most of his speech discussing the slowdown in productivity, Fischer signaled that a rate hike this year is still under consideration. Actually, his assessment of the U.S. economy was rather hawkish:
“So we are close to our targets. Not only that, the behavior of employment has been remarkably resilient.”
And even amid different shocks during the past two years, “the labor market continued to improve: Employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate.”
Therefore, Fischer joined other FOMC members who have recently made some hawkish comments. Last week, John Williams, San Francisco Fed President, said: “In the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later”, while William Dudley, New York Fed President, pointed out: “We’re edging closer towards the point in time where it'll be appropriate to raise interest rates further”.
Yellen has a casting vote, but it is unlikely that she disagrees strongly with her Vice Chair. We are skeptical whether she will provide clear rate hike guidance in Jackson Hole, but we believe that she may echo Fischer’s hawkish comments. The rising Libor is some reason to worry (we will discuss it in tomorrow’s Gold News Monitor), but new-home sales surged to an 8-year high in July, which means that real economy may cope with higher interest rates.
Summing up, on Sunday Fed Vice Chairman Stanley Fischer delivered an optimistic speech about the U.S. economy. His remarks are important as they might foreshadow Yellen’s message in Jackson Hole. We thus expect a slightly upbeat tone, which would be negative for the gold market in the short-term. The Fed is unlikely to raise interest rates before the U.S. presidential elections, but it may manage to convince the markets that December is a real option. You see, the market odds of a December hike are only 43 percent right now. If they increase significantly, the price of gold should go south.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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