Gold Continues to Slip Lower As Central Banks Keep It Up
Gold has resumed the bearish momentum as we predicted, with the SNB and BOE raising rates again today, while the FED remains hawkish
Today, central banks were in the spotlight, and the Bank of England (BOE) made a somewhat surprising move by increasing the bank rate by 50 basis points, bringing it to 5.00%. This decision by the BOE was seen as more hawkish, meaning they are taking a stricter stance on inflation. The move came after yesterday’s UK inflation report, which revealed higher-than-expected inflation numbers. The BOE’s decision indicates their determination to address inflation head-on, adopting a “go big or go home” approach.
On one hand, the BOE’s decisive action demonstrates their commitment and credibility in tackling inflation. By taking significant measures, they aim to control rising prices and maintain economic stability. However, on the other hand, the persistence in raising interest rates aggressively could potentially have unintended consequences and cause disruptions in the economy.
Federal Reserve board governor Michelle Bowman opening remarks at a Cleveland Fed conference on “Communities thriving in a challenging economy”.
Comments From the Cleveland FED Governor Bowman
- Additional policy rate increases will be needed to reach sufficiently restrictive level and control inflation
- Inflation still ‘unacceptably high’ despite drop in the headline number
- Mon pol has some effect on the economy but core inflation has essentially plateaued since the fall of 2022
- Will look for inflation on a ‘consistent downward path’ in deciding appropriate policy steps at coming meetings
- Full text
She tilts hawkish so it’s not a surprise.
Here’s the main part of her speech:
Recent research has argued that pandemic-related supply and demand factors, in addition to unusually expansionary fiscal policy, contributed to high inflation. And global and U.S. supply chain disruptions and shipping and logistics challenges drove up prices for a number of goods.2 Many of the supply-side issues have now abated, and the FOMC has rapidly increased the federal funds rate to bring demand into better balance with supply. But while headline inflation has declined substantially, it remains far too high. Therefore, I believe there is more work to do to bring inflation down.
I supported the FOMC’s decision last week to hold the federal funds rate target range steady and to continue to reduce the Fed’s securities holdings; however, I believe that additional policy rate increases will be necessary to bring inflation down to our target over time. Although tighter monetary policy has had some effect on economic activity and inflation to date, we have seen core inflation essentially plateau since the fall of 2022, and I expect that we will need to increase the federal funds rate further to achieve a sufficiently restrictive stance of monetary policy to meaningfully and durably bring inflation down. I will continue to monitor the incoming data and to look for signs that inflation is on a consistent downward path as I consider appropriate monetary policy at future meetings.
She doesn’t offer any hints there about how much more tightening is needed.
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