By Kitco News
Friday May 27, 2016 14:02
(Kitco News) - Gold settled down Friday for its eighth consecutive day following comments from Fed Chair Janet Yellen that highlight the prospect of a rate hike in the next few months.
In a conversation with Gregory Mankiw a macroeconomist at Harvard University, Yellen said that if the U.S. economic growth continues to build momentum, it could be appropriate to raise interest rates in the coming months.
In initial reaction to Yellen’s comments, gold prices fell to a session low at $1,209.50 an ounce and managed to settle the week slightly higher at $1,213.80 an ounce, down $8.60 on the day.
Yellen’s comments caused markets to raise expectations for a June interest rate hike; CME 30-day Fed Fund futures are now pricing in a 33.8% chance of a move next month. At the same time markets are pricing in a 47.7% chance of a move in July.
Although Yellen noted that the U.S. economy still faces some challenges, she was optimistic that it will continue to grow. She was particularly optimistic on the labor market
“By almost any measure, we are close to our full employment goal,” she said.
On inflation, she said that although a stronger U.S. dollar and weaker energy prices have kept price pressures well below the central bank’s 2% target, markets are starting to stabilize and inflation is expected to pick up in the next few years.
The one downside Yellen highlighted for the U.S. economy is the nation’s productivity, which has average about 0.5% a year within the last five years.
“That is a very miserable pace by any standard,” she said.
Yellen also closed the door on the idea that if the U.S. does experience an economic shock the central bank would introduce negative interest rates. She noted that with interest rates at low levels, the fed doesn’t have the scope to use traditional tools; however she added that if the country were to experience a negative shock they would use other tools like their bond purchase, instead of negative interest rates.
“[Negative interest rates are] not something we are thinking a great day about now,” she said.
Yellen was at Harvard to receive the Radcliffe Medal, which is awarded to a person who has made a significant impact on society.