Gold Out Of Fashion As Rate Hike Looms

THE New Zealand dollar fell to a month-low as the U.S. dollar strengthened after Federal Reserve chair Janet Yellen’s comments to Congress reiterated that interest rates may rise in December.

Along with altering the landscape for policymakers in Washington, D.C., and traders on Wall Street, the strength in the labor market, if it persists, is expected to shift the political debate as the 2016 presidential campaign heats up.

As a result, she said, there’s a “live possibility” that officials could raise rates at the Fed’s december 15-16 meeting.

JP Morgan economist Michael Feroli pointed out that this was the first Fed statement since 1999 that mentioned a potential rate increase at the next meeting, and many observers interpreted this as a signal to the markets. Investors were hesitant to make any major moves ahead of the government’s closely watched monthly jobs report, out Friday. Economists expect the report to show that US employers added 180,000 jobs in October, more than September’s increase of 142,000 jobs.

One congressman contemplating possible backsliding in the economy asked Ms Yellen if she could rule out the Fed ever resorting to negative interest rates.

As for Yellen’s outlook on the U.S. economy, she said it is performing well. Expectations of a hike increased following the non-farm payroll data from the US Department of Labor, released at 8:30 AM EST today. A number around the 177,000-new-job forecast could cause Treasury yields to spike and push the 10-year benchmark rate to 2.5% by end of year, Heppenstall added.

The dollar also got stronger as well, which means more misery for multinational businesses. Futures markets shifted to show a 70 percent probability of a December rate hike, up from 58 percent before the report.

Beginning rate hikes sooner than later would allow a “smoother, more gradual process of policy normalization”, Williams said.

Following Friday’s jobs report, markets were pricing in a roughly 70% chance the Fed would raise rates in December, and so Barclays is now coming back from sticking their necks out on a big call for the Fed to be in-line with consensus.

These numbers are considerably lower than was normal in past decades because the United States population is becoming increasingly elderly.

However, MIDF stressed the importance to note previous trends, where once the Fed tightened, it would begin to continuously tighten its monetary policy in nearly every Federal Open Market Committee (FOMC) meeting.