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September 26, 2017

Growing dissent among Fed members on December hike.

Growing dissent among Fed members on December hike.

Growing dissent between Fed’s governors on the outlook of inflation pressure turned out to be in sight a few days after the Washington meeting on monetary policy. At the same time, there were two polar views with one of the members saying that inflation is now back on recovery, while the others suggested underlying inflation problems have not been resolved yet.

Both president of the Federal Reserve Bank of New York, William Dudley, and the head of the Federal Reserve Bank of Chicago, Charles Evans, noted that core readings of the US economy remain stable, both expressed support for a step-by-step increase in interest rates.

However, if Dudley’s comments came in line with Fed Chairman Janet Yellen’s statement last week that inflation will eventually take route to the Fed’s 2 percent target, Evans’s words were much less determined on this matter.

Futures price in 76% chance of rate hike in December
“In reality, everything can be boiled down to an inflationary situation – it may take more time to deal with it than some think” Evans told reporters after a speech in the city of Grand Rapids, Michigan. “” I’m somewhat concerned that the recent inflation flattening may have crystallized risks in it. ”

Dudley called recent dollar weakening and sustained foreign growth among reasons to expect economic activity expansion in the US to be somewhat higher than the average and renewed growth in wages.

“I expect that inflation will grow and level off near the target of 2 percent in the medium term,” he said during a speech in Syracuse, New York.

“In response, the Fed will most likely continue to gradually withdraw from accommodative monetary policy,” added Dudley, a close associate of Yellen and a holder of a standing voice in the Federal Open Market Committee.

The head of the Federal Reserve Bank of Minneapolis, Neil Kashkari, meanwhile said he does not see the need to further raise the Fed’s rates due to the lack of any evidence that weak recent inflation data could improve.

“When I look at the situation in the economy, I do not see any indication that the economy is close to overheating,” Kashkari said during a speech at a university in North Dakota. “I do not see an increase in inflation, and so I do not see the need beat on the brakes. ”

Kashkari, who is a voting member of the Open Market Committee this year, opposed two Fed rate hikes in 2017 and recently said that they could damage economic growth.

With chances of rate hike near 80% we can expect further Fed rhetorics will speak for the case what in turn will push gold lower.

Higher odds for December hike dampens yield of gold
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