On Monday (April 1), spot gold opened higher than the $2,240 mark, reaching another record high. In early trading in the Asian market, spot gold expanded its gains, breaking through the 2250 mark and rising 0.87% during the day. It is currently trying to stabilize this mark. COMEX gold futures topped $2,270 per ounce.
Markets began to react to Powell's speech last Friday and PCE data for February, and watch out for increased volatility.
Federal Reserve Chairman Powell reiterated that the Federal Reserve is in no hurry to cut interest rates because policymakers are awaiting more evidence that inflation is under control. However, the market still believes that the first rate cut will occur in June.
Powell said at a San Francisco Federal Reserve event last Friday:
“The fact that the US economy is growing at such a steady rate and the labor market is still very, very strong gives us an opportunity to be more confident about falling inflation before taking the important step of cutting interest rates.”
He said the latest inflation data released earlier (i.e. February PCE) was “largely in line with our expectations.” However, Powell reiterated that it would be inappropriate to cut interest rates until officials determined that the inflation rate was moving in the direction of 2%. They think a 2% inflation rate is appropriate for a healthy economy.
Investors are now betting that the Federal Reserve will cut interest rates for the first time in June. Government data released on Friday showed that PCE, the potential inflation indicator favored by the Federal Reserve, cooled down last month. Core PCE rose 0.3% in February, while it rose 0.5% in January. This indicator is 2.8% higher than a year ago, and is still above the Federal Reserve's 2% target.
Citigroup economist Veronica Clark said, “Overall, the information hasn't changed much. The February inflation data appeared to be in line with their expectations, which was in line with other figures they thought were acceptable. Their current model is to wait for their confidence to increase slightly. Looking at several months of data, they will still be willing to cut interest rates in the middle of the year. ”
“It's great to see that some things are in line with expectations,” Powell said of the data, adding that the latest data isn't as good as what policymakers saw last year.
Powell said officials expect inflation to continue to fall on a “sometimes bumpy path,” echoing his remarks after the Federal Reserve's FOMC meeting earlier this month. Powell said at the time that it might be appropriate for the Federal Reserve to relax its policy “sometime this year.” But he and other policymakers made it clear that, given the potential strength of the economy and recent signs of continued price pressure, they are wary of cutting interest rates for the first time.
Powell also said on Friday that he believes the possibility of a current economic recession has not increased. However, he reiterated that if the job market weakens unexpectedly, Federal Reserve officials may make a policy response.
Overall, US inflation has abated sharply from the 40-year high it reached in 2022, and decelerated particularly rapidly last year. This progress appears to have stalled in January and February of this year, and consumer price growth has accelerated. Meanwhile, despite high interest rates, the US economy remains resilient. Inflation-adjusted consumer spending in February was higher than all economists' expectations, and employers are still hiring strongly. According to previously released data, US economic growth in the fourth quarter of last year was stronger than expected.
Although the median expectation of Fed officials to cut interest rates three times this year is the same as in December last year, nearly half of the officials expect to cut interest rates twice or less in 2024. Most policymakers say they want to see further evidence that inflation is falling back towards the 2% target before taking the first step.
Federal Reserve Governor Waller said on Wednesday that disappointing inflation data since the beginning of the year means that policymakers may need to keep interest rates high for longer than previously anticipated, and may even reduce the total number of interest rate cuts. Waller was the first to support rapid interest rate hikes to contain price pressure.
But Powell and some of his other colleagues said they don't need to see inflation reach their target before they start cutting interest rates. As inflation falls, high interest rates are putting more pressure on the economy. Some policymakers believe that in order to avoid excessive damage to the labor market, interest rates should probably be cut as soon as possible.
Matthew Luzzetti, chief US economist at Deutsche Bank, said, “The Federal Reserve currently relies heavily on data, and we need to see an improvement in inflation data in the next few months. People generally expect the inflation data to improve, but before the data is released, we either get confirmation or have different opinions about the data. From the perspective of the Federal Reserve's policy, it is difficult to accurately determine where we will end up. ”
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