During the Asia session on Thursday (June 13), Spot gold oscillated slightly lower. Currently trading near $2321.63 per ounce. On Wednesday, the gold price was blocked by a high shock. Because the May CPI data in the United States showed that inflation growth slowed down in the United States, the gold price soared by nearly $30 to $2341.51 per ounce, but the Fed kept interest rates unchanged, indicating that it will only cut interest rates once this year. The speech of Fed Chairman Powell was not as dovish as expected, and the gold price gave back most of its gains, with a closing price of $2324.71 per ounce, up about 0.35%. As for the product structure, 10-30 billion yuan products achieved operational income of 401/1288/60 million yuan respectively.

The US futures gold for delivery in August rose 1.2% on Wednesday to close at $2354.8.

The Fed kept interest rates stable on Wednesday, and decision makers said they expected to cut interest rates only once in 2024.

CPM Group's Managing Partner Jeffrey Christian said:"The Fed neither lowered nor raised interest rates, so investors turned to lower-risk assets, including gold. Therefore, prices have become very high, and profit-taking has begun to appear."

Fed Chairman Powell said that the inflation outlook proposed by the Fed is a "fairly conservative estimate" and may not be confirmed by future data, and it may be revised.

Powell added that the better-than-expected consumer price index data is welcome news for officials.

New York independent metal trader Tai Wong said, "Powell acknowledged that the FOMC has the opportunity to change its forecast after seeing today's data. He emphasized that this is a good report, which conveys a clear message: 'Do not send out invitations for a rate cut party first'. Gold prices will continue to be linked to employment and inflation data."

The consumer price index for May was flat month-on-month, lower than expected to increase by 0.1%. The core price rose by 0.2%, which is also lower than the economists expected by 0.3%.

Affected by the CPI data, the US dollar index fell nearly 1% to 104.24 during Wednesday's trading, and the decline narrowed after the Fed decision, closing near 104.71.

Nationwide chief economist Kathy Bostjancic said,"If the future inflation data continues to be moderate, the Fed may begin to cut interest rates in September and cut interest rates again in December."

According to CME "Fed Watch": The probability of keeping interest rates unchanged by the Fed in August (Beijing time) is 91.7%, and the probability of a 25 basis point interest rate cut is 8.3%. The probability of the Fed keeping interest rates unchanged until September is 38.5%, the cumulative probability of a 25 basis point interest rate cut is 56.7%, and the cumulative probability of a 50 basis point interest rate cut is 4.8%.

Interest rate futures show that the probability of the Fed cutting interest rates in November is higher, currently at 74.3%, while the probabilities of cutting interest rates by 25 basis points, 50 basis points, and 75 basis points are 50.7%, 22%, and 1.6%, respectively. The probability of keeping interest rates unchanged is 25.7%.

May US consumer prices remain stable, boosting expectations of Fed rate cut

May US consumer prices unexpectedly remained stable, as the decline in gasoline and other commodity prices offset the increase in rent costs. However, the inflation rate may still be too high, and the Fed may not be able to cut interest rates before September.

The report released by the US Department of Labor on Wednesday also showed that core inflation pressure weakened significantly in May, and the insurance premiums for motor vehicles appeared on a month-on-month basis for the first time since the fourth quarter of 2021. The data prompted the financial market to increase the possibility of the Fed cutting interest rates in September and December.

The US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) was flat month-on-month in May, compared with a 0.3% increase in April. This is the weakest reading since July 2022.CPI has been declining since strong data was released in February and March.

Economists previously predicted that the month-on-month CPI in May would rise by 0.1%. As large retailers including Target cut prices of products such as food and diapers to attract consumers who are tired of inflation, price pressures may continue to ease.

Although the Fed has tightened monetary policy aggressively in 2022 and 2023, the economy is still continuing to expand due to the resilience of the labor market. Inflation has weakened the popularity of US President Biden and may be one of the factors determining the result of the November 5 presidential election.

Biden welcomed the moderate CPI report, saying the report showed "progress in reducing inflation".

In May, gasoline prices declined by 3.6% after a 2.8% increase in April. Food prices remained unchanged in April and increased by 0.1% in May. Grocery store prices were stable, while milk prices dropped by 1.3%. The prices of non-alcoholic beverages also decreased. Fruit and vegetable prices remained stable.

However, meat, fish, egg, grain, and bakery prices have slightly increased compared to April. Rent increased by 0.4%, the same as in April. In May, CPI increased by 3.3% year-on-year, compared to a 3.4% increase in April. Although the year-on-year CPI growth rate has slowed down from its peak of 9.1% in June 2022, the inflation rate is still higher than the Federal Reserve's target of 2%.

Jeffrey Roach, the chief economist of LPL Financial, said: "Undeniably, the Federal Reserve has made progress in achieving its 2% goal, but the real debate is about the time frame."

Excluding the volatile food and energy sectors, core CPI rose by 0.2% in May. This is the smallest increase since October 2021, compared to a 0.3% increase in April. Without rounding, core CPI rose by 0.16%, the smallest increase since August 2021.

Rent is the main reason for the increase in core CPI. Owners' equivalent rent (OER), which measures the rent paid by property owners or the rental income from renting their property, rose by 0.4% for the third consecutive month. However, as market rents continue to decline, it is expected that the CPI rent measure will slow significantly this year.

Conrad DeQuadros, senior economic advisor at Brean Capital, said: "As most of the slowdown in market rents has yet to be reflected in CPI data, core inflation is likely to fall sharply in the second half of this year if the remaining seasonal analysis is correct."

Auto insurance is one of the main driving factors of core inflation, which decreased by 0.1%, the first time since October 2021 and the largest monthly decline. Motor vehicle insurance increased by 20.3% year-on-year. The soaring insurance premiums mainly reflect the increase in demand for used cars due to the shortage of motor vehicles during the COVID-19 pandemic, leading to maintenance-related expenses.

Overall, after rising by 0.4% in April, service industry prices increased by 0.2% again. Except for rent, service industry inflation in May remained unchanged.

Core CPI increased by 3.4% year-on-year in May, the smallest increase since April 2021, compared to a 3.6% increase in April. The three-month annualized growth rate of core CPI fell from 4.1% in April to 3.3%.

According to CPI data, economists expect the core personal consumption expenditure (PCE) price index to rise by 1%-2% in May. Core PCE is one of the inflation indicators tracked by the Federal Reserve for monetary policy. It increased by 0.2% month-on-month in April. Economists expect that core PCE will rise by 2.6% year-on-year in May, compared to a 2.8% increase in April.

"Restrictive monetary policy still needs to play a further role." said Scott Anderson, Chief US Economist at BMO Capital Markets.

"The Federal Reserve maintains interest rates and Chairman Powell says he will need more confidence in inflation decline before considering a rate cut"

The Federal Reserve announced on Wednesday that it will keep interest rates unchanged and delay the potential time for a rate cut until December. Policymakers expect to reduce interest rates only once this year, by 25 basis points. They believe that more constraints are needed to control inflation.

The Federal Reserve's latest forecast may exclude the possibility of interest rate cuts before the US presidential election on November 5. Policymakers have significantly reduced the expected number of interest rate cuts from three to one, each by 25 basis points, which they believe will give the economy more constraints to control inflation. Despite this, the new policy statement acknowledges "modest further progress" toward achieving the 2% inflation target, an improvement from the wording on May 1.

Federal Reserve Chairman Powell said after the two-day policy meeting that the new forecast reflects policymakers' "conservative" views on inflation prospects. Although the recent monthly data has slowed down, it is still not enough to give policymakers "greater confidence" in inflation continuing to fall toward 2%.

Powell said, "It's just one month of data." Earlier on Wednesday, a Labor Department report showed that consumer prices remained unchanged month-on-month in May, with a smaller year-on-year increase than expected.

Powell said, "We can consider easing policy when we have more confidence."

At the same time, the Federal Reserve also raised its estimate of long-term or "neutral" interest rates from 2.6% to 2.8%, indicating that policymakers believe that more constraints are needed to win the battle against inflation.

Progress in combating inflation has been slow recently. Federal Reserve policymakers currently expect the year-end inflation rate to be 2.6%, slightly higher than the forecast of 2.4% in March.

The US stock market's S&P 500 and Nasdaq indexes held gains on Wednesday, while the dollar and US bond yields continued to fall. Interest rate futures traders continue to expect the Federal Reserve to start easing policy in September and may cut interest rates for the second time before the end of the year.

"The market is more concerned than the economy whether there will be two interest rate cuts or only one this year," said Brian Jacobsen, chief economist at Annex Wealth Management. The Fed is basically rearranging its interest rate cut plans.

Although it now appears that the start of interest rate cuts this year may be later than expected by investors and the pace slower than expected, policy rates will decline rapidly next year, and by a full percentage point in 2025 and 2026.

The new statement and Economic Forecast Summary indicate that Federal Reserve policymakers are debating how to respond to recently released data. Many believe that recent data suggests a slowdown in inflation but also suggests that economic and employment growth remain stable.

Despite the sluggishness of the economy in the first quarter, the pace of economic growth this year is expected to reach 2.1%, above trend levels, and the unemployment rate will also remain at the current level of 4%.

"Recent indicators suggest that economic activity continues to expand at a steady pace. Job growth remains strong, and the unemployment rate remains low." Policymakers agreed unanimously on Wednesday's decision.

Inflation progress in the first few months of this year has been minimal. Therefore, almost all decision-makers have raised their estimates of the level of interest rates needed to win the war on inflation, according to the "dot map".

Combined with recent debates about the possibility that the neutral rate may be higher than expected, the new dot map suggests that policymakers have concluded that high interest rates need to be maintained for a longer period to suppress inflation. Decision-makers now estimate that the neutral rate is more than 25 basis points higher than at the end of 2023, when they had already raised their estimate of the rate in March.

Other analyst views

LPL Financial analyst Quincy Krosby said that the Federal Reserve's latest interest rate decision is likely due to its desire to avoid unnecessary easing of financial conditions, as the Fed, which relies on data, needs a series of rather weak inflation reports before starting a rate-cut cycle.

TradeStation analyst David Russell said, "We need to see more good data to increase our confidence that inflation is continuing to move toward 2%. The Fed is holding steady; they know things are improving but don't need to rush to cut rates. A strong economy allows Powell to push inflation out of the system without harming employment. The scenario of the golden-haired girl is emerging-but policymakers don't want to destroy it."

"New bond king" Gundlach: In fact, confidence in the Fed's interest rate cut this year has decreased. The US labor market is weakening, but it has not yet caused alarm. The workforce is shrinking, so labor participation rates are decreasing. Inflation will decrease. If oil prices fall, we will see further inflation slowdown.

Comerica's chief economist, Bill Adams, pointed out that it's worth noting that the balance of opinions in the dot plot doesn't necessarily reflect the voting situation of the FOMC from now until the end of the year. All regional Fed Presidents have a dot on the dot plot, but only a few have voting rights. The majority of the votes are cast by the directors, who are often more receptive to the idea of interest rate cuts. This suggests that most FOMC members with voting rights may think that it's most appropriate to cut interest rates twice before the end of the year. At the same time, if economic data differs from their expectations, most people won't feel obligated to stick to rate cuts. FOMC members have repeatedly emphasized that they will rely on data to make decisions step-by-step.

Chris Low, chief economist at Fhn financial company, said that for those who want interest rate cuts, the dot map tells them that it is too early to be too excited about rate cuts. The May CPI report was good news, but the dot map shows that the number of interest rate cuts in 2024 reminds us that we need more reports like May before the Fed can confidently cut rates.

Gene Goldman, the Chief Investment Officer of Cetera Investment, said that the actions of the Federal Reserve are like that of a CEO. It has lowered expectations of interest rate cuts to once or twice, but it is likely to overturn them later in the year with two or more interest rate cuts as inflation is rapidly receding.

Mike Wilson, Chief Investment Officer of Morgan Stanley, said that the Fed's interest rate decision roughly met expectations. Perhaps it was a bit disappointing compared to the CPI report. Considering the lag of M2 growth, I think we are currently on a downward trajectory, and this is now very clear. However, I think the Fed may be surprised by the growth of data that has been weak all year.

Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, emphasized his basic forecast of no rate cut this year. The analyst said, "If inflation continues to make progress in the summer, or if the labor market begins to show some signs of pressure, we do think the possibility of a rate cut this year is increasing." "However, the US economy is still resilient, and today's inflation data is affected by sub-items such as auto insurance and airfare, which means the threshold for starting a rate cut is still high."

According to The Wall Street Journal, US Treasury yields rose slightly during Powell's press conference, signaling that his words were not as dovish as some had hoped. Powell acknowledged that most Fed officials believe the central bank will cut interest rates once or twice this year, but he did not provide clues to his own forecast. Powell also said that economic strength, especially labor markets, will affect the Fed's decision. He suggested that a weak economy could increase the likelihood of a rate cut, but he pointed out that the current economy seems to be on a solid footing.

"Federal Reserve megaphone" Nick Timiraos' latest article states that despite the slight improvement in inflation shown in the US CPI report on Wednesday, the Fed still expects to cut interest rates only once this year, indicating that most officials are not in a hurry to cut rates. Former Fed official Laurence Meyer said, 'The CPI data is good, and I think the Fed may cut interest rates in September. They will have three monthly economic reports before the mid-September meeting.' Some analysts have said that given the moderate CPI, the Fed's forecast tonight looks a little outdated, but this may also reflect their unwillingness to change their forecast based on a single data point. In recent months, Fed officials have also been puzzled as to why their interest rate stance has not further slowed economic growth. Powell attempts to explain this mystery, pointing out that last year's surge in immigration and labor force participation boosted demand, enabling the economy to provide more goods and services.

JPMorgan economists said Wednesday's consumer inflation report and Fed meeting increased the risk of a first rate cut in September, but their baseline forecast is still for a rate cut in November. "Overall, although the median value of this year's dot map is somewhat surprising, our view on the Fed has not changed much," wrote Michael Feroli, JPMorgan's chief US economist, in a report. "We continue to believe that the first rate cut will be in November, and after this morning, the risk may be more towards September than December."

Market outlook

Attention needs to be paid to the US initial jobless claims and May PPI data, to the speeches of Fed officials, and to the further interpretation of the Fed's decision. Pay attention to geopolitical news.

(Spot gold daily chart, source: E-Huitong)

At 07:48 Beijing time, spot gold was quoted at 2321.33 US dollars/ounce.