The personal consumption expenditure (PCE) price index for March released today reveals that inflation remains entrenched in the U.S. economy, although it has not risen as much as some analysts feared. . The gold futures market's reaction to this data was relatively muted.
As of 5:40 p.m. EDT, the most active gold futures contract for June 2024 was fixed at $2,347.20, after rising $4.70, or 0.20%, on moderate volume of 163,124 contracts. However, gold futures have fallen significantly this week, opening Monday at $2,403.70, down $66.60, or 2.76%.
The core PCE price index, which excludes volatile food and energy components, rose 2.8% year-on-year in March, matching February's rise. This was slightly higher than the 2.7% expected by economists surveyed by Dow Jones. His broader all-item PCE price index rose 2.7% versus the consensus estimate of 2.6%. Both indicators rose 0.3% on a monthly basis, as expected, matching February's gains.
George Mateyo, chief investment officer at Key Wealth, said: “The inflation report released this morning was not as strong as feared, but investors believe inflation will fully recover and the Fed will cut interest rates.'' We shouldn't get too attached to our ideas.” In the short term, the prospect of rate cuts remains, but they are not guaranteed, and labor market weakness will be needed for the Fed to have confidence in cutting rates.”
The inflation data will set the stage for next week's Federal Reserve meeting. The central bank is widely expected to keep the current benchmark interest rate in the 5.25-5.5% range at the end of the May Federal Open Market Committee (FOMC) meeting on Wednesday.
Fed officials, including Chairman Jerome Powell, have expressed concern that inflation continues to be higher than expected and, as a result, have lowered interest rates to current levels before initiating the cycle's first rate cuts. They have issued a statement stating that it is necessary to maintain this for a long period of time.
Indeed, it currently appears unlikely that the Fed will cut rates by three quarter points as expected this year. The schedule for the first rate cut has been pushed back to September at the earliest, according to CME Group's FedWatch tool, which tracks futures market prices.
The inflation trends evident in the PCE report will determine whether the Fed's interest rate decision next week will lead to policy makers seeing the latest data as enough progress to return inflation to the 2% target, or whether further monetary policy tightening is likely. This suggests that it still depends on whether you think it is necessary. Markets will be closely parsing the Fed's language and economic forecasts for clues about the future direction.
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