Chicago 26/08/2016 - Federal Reserve chairwoman Janet Yellen said that the argument for another rate hike "has strengthened in recent months" during her speech in Jackson Hole, Wyoming, which led to wild fluctuations in commodity and equity markets and a weakening of the dollar.
Yellen's assessment is congruent with several of her colleagues including vice chair Stanley Fischer and signals that the policy-board is growing more comfortable with either a hike in September or December.
Despite second-quarter GDP growth at a measly 1.1 percent, a strong housing recovery and consistently expanding labour market has alleviated concerns over a recession following the UK referendum vote to leave the eurozone.
Looking ahead, the FOMC expects moderate growth in real gross domestic product (GDP), additional strengthening in the labor market, and inflation rising to two percent over the next few years.
Commodity markets initially collapsed, but staged a major recovery as the dollar index tumbling to a one-week low at 94.49. Comex copper traded at $2.0980 per pound, up 2.10 cents or one percent. Comex gold gained $19.40 to $1,344.0 per ounce – around a one-week high.
Central bankers have gathered in Wyoming this week to discuss monetary policy and the course of the American economy as it moves into the second half of the year.
Preceding the speech, St. Louis President James Bullard said that the September meeting might be a good time to raise the Federal Funds rate.
"If we got to a meeting and we felt things were looking stronger, that might be a good time to do that," Bullard said with an important caveat that the weak second-quarter GDP was below previous trends.
Prediction markets aren't expecting the Fed to move in September and are only assessing a 42-percent chance that the Fed raises rates at all this year, according to CME Group FedWatch.
Yellen has been adamant that the Fed should raise rates at least twice this year and begin the extended process of normalising rates after beginning the move in December 2015.
In a jam-packed US data day, preliminary GDP growth quarter-over-quarter for the second quarter was in-line with forecasts at 1.1 percent. The preliminary GDP price index over the same period expanded at 2.3 percent, a touch above the 2.2-percent forecast.
Goods trade balance for July stood at -$59.3 billion, beating expectations of -$62.3 billion. Later, consumer sentiment and inflation expectations are set for release.
Turning to US markets, the Dow Jones industrial average and S&P were last up 0.6 percent and 0.7 percent respectively.
As for other precious metals, Comex silver for September delivery surged 48.6 cents or 2.7 percent to $18.970 per ounce. Trade has ranged from $18.470 to $19.035.
Platinum for October settlement increased $13.60 or 1.3 percent to $1,090.60 per ounce while the most active palladium contract stood at $701.30, up $16.20.
(Editing by Tom Jennemann)