Gold is 'on the radar screen' and the Fed is split 'down the middle,' former Fed president says

Jim Bullard says a hold next month could still be hawkish, foreign central banks found physical gold more desirable than Bitcoin this year, and gold’s run-up may signal eroding faith in the Fed, something he says is "on the radar screen." The Federal Open Market Committee is divided almost exactly in half over whether to raise interest rates next month, according to a man who sat in that room for 15 years. "I think the committee is split pretty much down the middle, so 10-9 one way or the other," former St. Louis Fed President Jim Bullard told Kitco News on Friday. "A lot of people that are sitting on the fence could be convinced to go either way." This is the closest thing to an insider headcount anyone has put on the record this week, and it arrives on a day markets decided the argument was already over. After Fed Chair Kevin Warsh told the Kansas City Fed's Jackson Hole symposium that "the responsibility for 65 months of sustained elevated inflation sits squarely with the central bank, and that is where it belongs," pricing for a September hike climbed from roughly 36% to about 60% on CME's FedWatch tool. The odds of a cut went to almost zero. The two-year Treasury yield, the part of the curve that tracks the Fed's next move, added 9 basis points, or 9 hundredths of a percentage point. The 30-year barely moved, holding near 5.1%. The currency did the heavy lifting, with the euro down 1.6% and the yen sliding toward 160. The public record made the hawks look like a small faction. The committee held rates on July 29 by a vote of 9 to 3, its fifth consecutive hold, with Cleveland's Beth Hammack, Dallas's Lorie Logan and Minneapolis's Neel Kashkari dissenting in favor of an increase. Kansas City's Jeff Schmid signaled this week he would put himself in the same camp. Bullard's read says the fence is a lot more crowded than the roll call shows. Bullard ran the Federal Reserve Bank of St. Louis from 2008 to 2023. In March 2022 he dissented against his own committee for moving too slowly, arguing for a half point instead of a quarter while advocating a plan to start shrinking the balance sheet, then published his reasoning so anyone could check his work. He is now Dean of the Daniels School of Business at Purdue University. The problem with trading September as yes or no The most useful thing he said is a warning for anyone treating next month's meeting as a binary. "You could hold, but it could be hawkish nevertheless," Bullard said. "And you could be more or less signaling that you'd move at the October meeting or at the December meeting." The mechanism is the dot plot, the quarterly chart where every policymaker marks down where they expect rates to finish the year. September is a dot plot meeting, which makes it, in his view, ironic. "The September meeting is, ironically, the meeting with the most forward guidance, because that dot plot is saying what you're going to do by the end of 2026 on the funds rate," he said. "That's basically saying what you're going to do at the current meeting and at the next two meetings." His guess at what those dots show is one increase by year end, possibly two. Which means the committee can sit still next month and still hand markets a tightening path for the rest of the year. Traders are pricing an event. The Fed may be planning a direction. Bullard had half-expected Warsh to scrap the dot plot outright on Friday and was surprised he didn't. On which risk is bigger – publishing hikes the Fed then fails to deliver, or publishing none after a speech like this morning's – he wouldn't pick a side. "I'd put 50/50 on that one." He was careful not to paint the chairman as inconsistent on guidance. Warsh's objection, in Bullard's reading, is to the very explicit kind. "If he had come out today and said, ‘for sure we're moving in September,’ or ‘for sure we're not moving in September,’...