Federal Reserve Chair Jerome Powell, at the Economic Club of New York on Friday, indicated that the persistent strength of the U.S. economy might necessitate additional interest rate hikes, counteracting recession forecasts. The Fed Chair also reinforced his commitment to a 2% inflation target despite global uncertainties.
Powell pointed out that rising bond yields are assisting in tackling stubborn inflation but are also putting pressure on equities; ten-year U.S. Treasury yields reached 4.99%, their highest since July 2007. Despite these tensions and high bond yields, gold prices are surging towards $2,000 an ounce. Analysts note that gold's traditional negative correlation with bond yields has broken due to geopolitical unrest, potentially easing the Fed's pressure to hike rates.
Mike Archibald of AGF Investments commented on these tighter conditions but also suggested there's a likelihood the Fed might pause rate hikes due to consumer impact. He questioned how long these elevated rates would persist and predicted Powell's continued focus on controlling expectations and maintaining flexibility for possible future hikes.
Meanwhile, U.S. companies reported mixed Q3 earnings: Tesla (NASDAQ:TSLA) saw weaker-than-expected results leading to a 9% drop in its stocks, while Netflix (NASDAQ:NFLX) enjoyed stronger subscriber growth resulting in a 16% increase in its stocks.
The Canadian dollar traded at 72.91 cents against the US dollar amidst the escalating Israel-Hamas conflict that caused a surge in commodity prices, with oil nearing $90 per barrel and gold and copper prices seeing significant increases.
Looking ahead, the Bank of Canada is expected to make a similar rate decision next week. As concerns mount over U.S. debt and potential loss of yield curve control, gold's allure increases, possibly driving further yield increases and prompting the Fed's balance sheet expansion.
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