Gold Analysis: XAU/USD holds a key neutral zone around $4,500

FED’S WILLIAMS: ENERGY PRICE IMPACT WILL DEPEND ON MARKET LEVELS FED’S WILLIAMS: FED BALANCE SHEET FRAMEWORK FUNCTIONING EFFECTIVELY FED’S WILLIAMS: ENERGY IMPACT ON INFLATION TO BE DATA-DEPENDENT; EXPECTS EFFECT ON HEADLINE, NOT CORE FED’S WILLIAMS: US ECONOMIC OUTLOOK REMAINS SOLID DESPITE HEIGHTENED UNCERTAINTY

Members commenced their discussion of financial conditions by considering the impact on markets of the current conflict in the Middle East. Global prices for oil and other forms of energy had risen sharply, short-term inflation expectations had picked up and financial market volatility had increased. The conflict was likely to pose a material adverse supply shock to the global economy, though members agreed that the eventual scale and persistence of the shock was highly uncertain at the time of the meeting. Consistent with that, market prices had continued to be volatile as market participants revised their assessment of the potential implications in response to the flow of information. Members noted that, despite the pronounced volatility, financial markets had so far continued to function effectively. Market expectations for future central bank policy rates had risen materially in almost all economies since the onset of the current conflict, in anticipation of increased near-term inflationary pressures. This included some central banks that had previously been expected by market participants to lower rates over 2026, such as the US Federal Reserve and the Bank of England, which, at the time of the meeting, were expected to hold rates steady or possibly raise them. Members discussed why markets did not expect most central banks to look through the supply shock emanating from the conflict. They noted that this was more difficult to do when the shock was expected to be large and inflation had been above target for some time (as was the case in many economies). Government bond yields had increased since the start of the current conflict in the Middle East, including in Australia. The largest increases had occurred in countries where near-term expectations for policy rates or inflation had increased most sharply in response to the outlook for higher energy prices or inflation. Market-implied measures of longer term inflation expectations were still well anchored in most countries, including in Australia, as markets expected central banks to adjust monetary policy as required. Risk premia in equity and corporate bond markets had risen a little since the onset of the current conflict, including in Australia, but remained low overall. The largest falls in equity prices had been in economies that were large net energy importers, such as the euro area, the United Kingdom, Japan and Korea. In some Asian markets, these declines had merely offset strong gains earlier in the year. By contrast, the decline in US equity prices since the onset of the conflict had followed their earlier underperformance arising from concerns about the effect of artificial intelligence (AI) on corporate profitability and vulnerabilities in private credit markets. Members turned to assessing the stance of fin Just in | RBA Reports Majority View Financial Conditions as Insufficiently Restrictive, Leaning Towards Supportive RBA minutes show minority saw risk of weaker domestic consumption and looser labor market RBA: MID EAST CONFLICT MAKES PREDICTING THE FUTURE PATH OF THE CASH RATE UNCERTAIN. ... Reserve Bank of Australia says A$ reaction will influence how the conflict affects the economy.