Key Takeaways
Gold prices fell sharply Friday after Federal Reserve Governor Christopher Waller, previously a proponent of rate cuts, said the Fed should open the door to a possible rate hike, sending the U.S. dollar and Treasury yields higher.
"The next move, whether it is a hike or cut, will depend on the data," Waller said in remarks for an economic forum, adding he would support removing the "easing bias" from the policy statement.
The comments triggered a swift market repricing. The 10-year Treasury yield, a key benchmark for the opportunity cost of holding non-yielding assets like gold, jumped from 4.53% to 4.58%. Futures markets now price in a nearly 67% probability of a quarter-point rate hike by the Fed's October meeting, according to data from Reuters.
The shift undermines what had been a strong tailwind for gold, which does not offer a yield. With interest rates potentially staying higher for longer—or even moving higher—the appeal of holding gold diminishes. The next major catalyst for the market will be the Fed's June 16-17 policy meeting.
Waller's pivot is particularly significant as he was considered one of the more dovish voices on the Federal Open Market Committee. He argued that with the Fed's preferred inflation measure hitting 3.8% in April and broadening across goods and services, the central bank needed maximum flexibility. "I do not expect to support a change to the policy rate in the near term," he stated, effectively taking the prospect of rate cuts off the table for now.
His comments amplify the challenge for incoming Fed Chair Kevin Warsh, who is set to be sworn in shortly. Instead of managing a widely expected easing cycle, Warsh may now have to contend with a board that is increasingly open to tightening policy further to bring inflation back to the 2% target.
The market's reaction reflects a broader trend in 2026 where inflation has remained more persistent than anticipated. Before Waller's remarks, traders were betting on an initial rate cut by December. Now, a hike is priced in for 2026.
The strength in the U.S. dollar, which typically moves inversely to gold, further pressured the precious metal. While Waller is not actively calling for a rate hike, his desire to change the official policy language signals a significant shift in the central bank's thinking, suggesting the path of least resistance for interest rates may now be higher.
This article is for informational purposes only and does not constitute investment advice.
