On Wednesday at 20:30 Beijing time, the US will release the May consumer price index (CPI). At 2:00 a.m. on Thursday, the Fed will announce its interest rate decision and economic outlook summary, followed by Fed Chairman Powell's monetary policy press conference at 2:30 a.m. May CPI data will help the Fed adjust the 'dot plot'.

Economists surveyed by Factset expect US May CPI year-on-year growth to maintain last month's 3.4% and month-on-month growth to slow from 0.3% to 0.1%.

Economists predict that the core CPI, which excludes volatile energy and food prices, will slow from 3.6% to 3.5% year-on-year. If this prediction is accurate, this will be the lowest level since April 2021. The month-on-month growth rate of core CPI is expected to be 0.3%, the same as in April.

If the above consensus forecasts prove to be accurate, it may help to maintain the hope of the Fed cutting interest rates this year, although it is almost impossible for the Fed to cut interest rates at its June and July policy meetings.

"You will get CPI data during the meeting, which will determine the 'dot plot'," said Diane Swonk, chief economist at KPMG LLP.

Market participants widely expect the Fed to keep benchmark interest rates unchanged as the central bank waits for more evidence that inflation is still on target toward 2%.

Core service sector inflation

Investors will focus on core service sector inflation, especially housing inflation.

Blerina Uruci, chief US economist at T. Rowe Price, wrote that Fed officials will need to see significant slowdowns in price increases across all service sectors, where inflation has proven more problematic than in goods sectors. Uruci said a slowing in housing costs, which account for a large share of CPI, would help "speed up the process of inflation's return to 2%."

David Donabedian, chief investment officer at CIBC Private Wealth, also pointed to housing inflation as the “problem child." He calculated that the core CPI will return to 2% by excluding housing categories. "While the reality of rising rents has moderated, government data hasn't kept up with the reality," Donabedian wrote.

Interest rate and inflation forecasts

Powell told reporters in December last year that officials were 'encouraged' to update their forecasts when key data is released during the two-day policy meetings. He said forecasts could be updated 'right up until the end of the meeting,' and at last December's meeting, 'some people did update their forecasts' to incorporate new inflation data.

According to a Bloomberg survey, 41% of economists expect the median rate forecast to indicate two rate cuts in 2024, while another 41% of economists expect the Fed to cut rates once or not at all. Officials may also raise their long-term rate level expectations, reflecting a view that recent restrictive policies appear less effective than in the past.

Derek Tang, an economist at LH Meyer Monetary Policy Analysis, said officials had 'seen some upside risks,' which means that 'they have to be very careful in implementing an accommodative policy to make sure it doesn't become over-accommodative and inadvertently boost the economy.'

Policymakers may increase their 2024 inflation forecast, reflecting higher-than-expected first-quarter economic data. They could also raise their unemployment rate forecast, which rose to 4% in May, the highest level in more than two years.

Statement

The FOMC is almost certain to retain its rate guidance in its post-meeting policy statement, which says it would not reduce rates unless there is 'confidence that inflation will rise sustainably to its 2 percent target.'

In May, the FOMC said there had been 'little further progress' on inflation in recent months. But April inflation data released since the May policy meeting has slowed from the previous three months, so retaining the rhetoric may be seen as a hawkish signal.

Committee Changes

St. Louis Fed President Alberto Musalem, who took office in April, will submit quarterly forecasts for the first time at this meeting. This will also be the last meeting for Cleveland Fed President Mester, who will resign at the end of June after her term expires.

Press Conference

Powell may face questions from reporters about whether he agrees with the mid-point rate forecast for 2024 and whether he will consider cutting interest rates at the upcoming July or September meetings. According to futures data, investors are betting that there is almost a 50% chance of an interest rate cut in September, while the possibility of a rate cut in July is very low.

Powell is almost certain to be asked about his views on CPI, and he may also be asked about signs of recent labor market slowdown and economic growth slowdown.

"He may say that the Fed is monitoring signs of economic weakness and so far, consumer data seems okay, which is what they are closely watching," said Stephanie Roth, chief economist at Wolfe Research.

Gold Technical Analysis

From a technical perspective, Fxstreet analyst Haresh Menghani pointed out that the integer level of $2300 seems to be a support level before the area of $2285. With the background of falling below the 50-day simple moving average (SMA) on Friday, subsequent selling below this moving average will be seen as a new bearish signal by traders. Given that the oscillation indicator on the daily chart remains in the negative zone, the gold price may accelerate towards the next relevant support level near the $2254-2253 area. The downward trajectory may further extend to the $2225-2220 area and even to the $2200 mark. On the other hand, any strong rally that breaks through the $2325 level is more likely to attract new sellers and be limited near the 50-day moving average support, currently located near the $2345 area. Next is the support area of $2360-2362. If the bears liquidate their positions, the gold price will retest last week's high near the $2387-2388 area and return to the $2400 mark. Continued strength will eliminate any recent negative biases and pave the way for further upward momentum.

Resistance at $2300 seems to be holding as a support level before the $2285 area. Falling below the 50-day simple moving average (SMA) will signal bearishness to traders. With the oscillation indicator on the daily chart remaining negative, gold price could fall rapidly to the next support level at around $2254-2253 and further extend to the $2225-2220 area, and even down to $2200. However, any strong rally that breaks through the $2325 level is more likely to attract new sellers near the $2345 area. A support area then lies at $2360-2362. If the bears liquidate their positions, gold price will retest last week's high at around $2387-2388 and may reach back to the $2400 level. Sustained strength will eliminate any recent negative biases and pave the way for further momentum in the gold market.

Edited by Jeffrey