Gold Retreats After Warsh Flags Inflation as Greater Threat Than Weakening Employment
Gold slid more than 3% on Friday after Fed Chair Kevin Warsh signaled inflation is a bigger concern than the slowing labor market, reinforcing a hawkish higher-for-longer policy stance.
Spot gold price faced heavy selling pressure on Friday as Federal Reserve Chair Kevin Warsh reaffirmed his resolve to return inflation to the central bank's 2% objective.
Speaking at the annual Central Bank Symposium in Jackson Hole, Warsh said the price-stability side of the Fed's mandate now troubles him more than a softening labor market. He noted that while certain groups, such as recent graduates, face hurdles, "people who want to work, by and large, are holding or finding jobs," adding that employment conditions remain consistent with full employment.
On inflation, however, his tone sharpened. The Fed's preferred measure, the 12-month change in the PCE price index, which stands at 3.7%, with the six-month reading at 4.1%. "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," Warsh said.
Although he offered no explicit forward guidance, analysts interpreted the inflation emphasis as hawkish. Adam Button, Chief Currency Analyst at investingLive.com, said the comments suggest the chair is leaning toward a rate hike.
Gold's initial reaction was a slide well below $4,500 an ounce as markets began pricing in a possible hike as soon as next month. Spot gold last traded at $4,458 an ounce, down more than 3% in the past 24 hours.
Warsh also sounded upbeat on the broader economy, saying broad financial conditions are hard to characterize as restrictive and that actual consumer spending has climbed more than 2% over the past four quarters.
Jeffrey Roach, Chief Economist for LPL Financial, said the speech reinforced a higher-for-longer stance, noting that "the distinctly hawkish speech gave support to the dollar."
Related assets: Gold, Silver, Palladium, Platinum