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US bond yields near 5%, gold nears $2,000 amid Fed inflation commitment

US 10-year bond yields came within a hair’s breadth of breaching the 5% level on Thursday, and gold futures prices moved closer to the $2,000 level after Fed Chair Jay Powell again underlined that the central bank would be “resolute” in its commitment to the 2% inflation target.

In a widely anticipated speech, the Fed chair acknowledged signs of easing inflation but left listeners with the strong impression he continues to lean towards an increase in rates.

“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said in his speech. “We cannot yet know how long these lower readings will persist or where inflation will settle over the coming quarters.”

“While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent,” Powell added.

Powell told his audience at the Economic Club of New York that he doesn’t think rates are too high now.

“Does it feel like policy is too tight right now? I would have to say no,” he said. Still, he noted that “higher interest rates are difficult for everybody.”

Recent figures have shown that while inflation remains well above the target rate, the pace of monthly increases has decelerated, and the annual rate has slowed to 3.7% from more than 9% in June 2022. The current rate though had been pushed up from the June low of 3% by the surging in oil prices, thanks to production cuts by the Saudis and Russia and now the fighting in and around Gaza and Israel.

“Incoming data over recent months show ongoing progress toward both of our dual mandate goals —maximum employment and stable prices,” he said.

But he did say that the labor market and economic growth may need to slow to ultimately achieve the Fed’s goal.

“Still, the record suggests that a sustainable return to our 2 percent inflation goal is likely to require a period of below-trend growth and some further softening in labor market conditions,” Powell said.

In response to that, the yield on the key 10-year bond rose to peak for the day at 4.996% and ended at just over 4.98% heading into Asian trading on Friday. That’s the highest yields have been since 2007.

Wall Street shares fell, but gold rose to around $1,987 an ounce. Gold is now up close to 6% in the past week of trading. Silver edged up 0.4%, and even weak copper added ground to end at $3.

The US dollar weakened slightly (the Aussie dollar ended a touch easier at just under 63.30 US cents). Oil prices also jumped, with US West Texas Intermediate crude rising to within sight of $90 a barrel off the back of continuing tensions in and around the Gaza area of the Middle East.

Adding to the uncertainty, the weekly data on initial unemployment benefits claims fell below 200,000 to the unusually strong 198,000. It hasn’t been that low for 9 months.

It made this part of Powell’s speech even more pertinent:

““Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” he said.”

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