Federal Reserve officials divided on future interest rate hikes

Will the Federal Reserve abandon the need to continue raising interest rates?

By Nadia Elbilassy | @Nadia Elbilassy | 3 July 2023

Market open
  • Gold prices took another dip overnight before correcting this morning

  • Expectations for another 25bp rate hike in the June meeting have dropped to 65%.

  • The minutes confirmed that the interest rate hikes will highly depend on key economic data

Finding common ground

The recently unveiled minutes of the Federal Reserve's latest meeting, made public on Wednesday, shed light on the contrasting opinions among its members regarding the pace of future interest rate hikes.

While some members advocate for further increases, others propose a reduction in the rate at which monetary tightening occurs. During the May 2nd and 3rd meeting, the members ultimately reached a consensus to raise interest rates by 25 basis points but decided against pursuing a continuous upward trajectory.

Certain members expressed concerns about the potential risks associated with tightening credit and its adverse impact on the global financial system. Despite these worries and mounting apprehension about a possible recession, the members are divided on the necessity of aggressive interest rate hikes to curb inflation.

A faction prefers a cautious approach, suggesting that the bank may consider maintaining interest rates at a steady level until the end of 2023. However, a decision to lower interest rates is unlikely and lacks support from the majority of Federal Reserve members.

Gold resumes decline amidst strengthening dollar

On Thursday, gold prices stabilized as the US dollar surged to its highest point in two months, diminishing the demand for the precious yellow metal. The spot gold price remained steady at $1,957.09 per ounce by 0519 GMT, while US gold futures experienced a slight decrease of 0.3% to reach $1,958.80. With the rival safe-haven currency, the US dollar, reaching its highest level since mid-March, gold becomes less appealing to foreign buyers.

Following the release of the Federal Reserve meeting minutes, the likelihood of a rate hike in the upcoming June meeting, as indicated by the CME Group tool, has decreased to 65%, while expectations for a 25 basis points increase have returned to 34%.