On Friday at 21:30 Beijing time, the USA will release the Federal Reserve's favorite inflation data - the November PCE price index. Although the path to achieving the Federal Reserve's 2% target for inflation remains challenging, overall inflation may still continue to cool.

Previously, the Federal Reserve announced a reduction of 25 basis points in interest rates but halved expectations for rate cuts next year. Analysts expect that as inflation progresses slows and the labor market remains balanced, the pace of rate cuts by the Federal Reserve will slow down in 2025.

The market expects that in November, the overall PCE price index will increase by 0.2% month-on-month, consistent with the previous value, and rise by 2.5% year-on-year; they also expect that the core PCE price index, excluding volatile food and energy prices, will increase by 0.2% month-on-month, slowing from last month's 0.3%, and rising by 2.9% year-on-year, up from last month's 2.8%.

"Month-on-month, the overall inflation trend will decline," said Lydia Boussour, a senior economist at EY. She expects the overall PCE month-on-month growth rate to be about 0.2%, with the core PCE month-on-month growth rate around 0.1%.

Although the overall PCE inflation rate is expected to rise from 2.3% in October to 2.5% in November, Boussour stated that part of the increase is related to weaker inflation data from a year ago: "You will encounter those less favorable base effects. This will push up the year-on-year inflation rate."

Overall, Boussour believes the fundamental drivers of inflation – including the labor market, Consumer spending, domestic demand, and changes in housing prices – are still trending moderately in the short term. "All these factors suggest that even though the road is bumpy, we are still in a trend of slowing inflation," she said.

Most of the raw data in the PCE report are released before the report is published, which means economists already have a good understanding of the data to be released on Friday. The PCE data is also the Federal Reserve's preferred inflation indicator, rather than the CPI report released earlier this month.

Based on this data, Boussour expects Friday's PCE price index to show a decline in housing prices, with the increase in portfolio management services being less than in October. She mentioned that commodity prices might slightly decrease and added that she does not expect RBOB Gasoline prices to be a major deflationary factor this time, which has driven the overall inflation rate down for much of 2024.

Boussour added that, overall, 'this report will be somewhat more encouraging than the slightly sticky CPI data.'

Although the drivers of slowing inflation are still at play, Analysts stated that the policy outlook for Trump in 2025 may delay this progress. 'We do see that higher tariffs and deregulation could bring upward risks to inflation outlook,' Boussour said. She also pointed out the possibility of strong economic growth and changes in tax policy, all of which could exacerbate ongoing price pressures. 'Before the elections, inflation may be higher than our previous expectations, and this possibility is significant.'

Will the Federal Reserve cut interest rates in January next year.

Economists at Bank of America wrote earlier this month, 'The outlook for the Federal Reserve remains unclear after December, inflation progress has recently stalled, and there are upside risks to inflation going forward.'

Many Analysts expect the Federal Reserve to pause interest rate cuts at the meeting in January next year. The Bonds Futures market also agrees; according to data from the CME Group's FedWatch Tool, traders expect an 88% probability that the Federal Reserve will keep interest rates unchanged in January.

Additionally, the annual changes in the composition of the Federal Reserve FOMC voting members next year may slightly increase resistance to further rate cuts. Compared to the soon-to-retire voting members, the incoming ones tend to be more hawkish. TD Securities Analyst Oscar Munoz stated, 'This opens the door for more dissenting votes next year.'

At the December FOMC meeting, 4 of the 19 Federal Reserve decision-makers wrote down forecasts indicating that rate cuts were inappropriate, with Cleveland Fed President Mester casting a dissenting vote as a voting member. Mester will exit the FOMC next year, to be succeeded by Chicago Fed President Goolsbee, who believes that the policy rate needs to be significantly lowered next year, clearly more dovish than Mester.

However, the other two new voting members — St. Louis Fed President Bullard and Kansas City Fed President George will make the stance of the 2025 voters much tougher. They will replace the centrist Atlanta Fed President Bostic and San Francisco Fed President Daly.

Analysts at TD Securities speculate that Bullard is one of the four policymakers who submitted forecasts opposing this rate cut, and George may be another, both of whom have suggested some hesitation regarding further rate cuts. The fourth possibility is Fed governor Bowman, who opposed a 50 basis point rate cut in September but may have shifted to support this week's cut during the two-day meeting.

The quarterly economic forecast summary from the Federal Open Market Committee (FOMC) indicates that officials estimate the median federal funds target rate will be 3.75%-4.00% at the end of 2025. This suggests that the Fed may only cut rates by 50 basis points next year, lower than expectations in September.

At the press conference, Fed Chair Powell stated that this change is consistent with a more robust inflation forecast.

Has the short position on Gold been ignited?

On Friday, gold prices maintained a bullish tone amid general risk aversion. The ongoing geopolitical risks and concerns over the trade war, combined with fears of a U.S. government shutdown, have driven some safe-haven funds into gold. Global risk-averse sentiment has led to a modest decline in U.S. Treasury yields, which has limited the recent rise of the dollar to a two-year high and provided additional support for gold.

Nonetheless, the hawkish signals from the Fed indicating a slowdown in rate cuts in 2025 still constitute a bullish sentiment for U.S. Treasury yields and benefit the dollar bulls. This, in turn, has failed to help the non-yielding gold prices regain above $2600 amidst its intraday gains. Traders are now focused on the upcoming PCE data, which may impact dollar pricing dynamics and influence gold.

FXStreet analysts indicate that from a technical perspective, gold's break below the 100-day simple moving average (SMA) after the FOMC meeting is seen as a new trigger for bearish traders to enter. Although indicators suggest that the minimal resistance path for gold prices is upward, any gains may still face resistance around $2626. If gold can break through this level, subsequent buying could trigger a short squeeze rebound, pushing gold up to the next relevant resistance level, near the supply zone of $2652-$2655. If it breaks through here, the bulls will regain control and pave the way for further upward momentum.

On the other hand, the low of about 2,583 dollars that Gold reached on Thursday may provide some support. If it breaks below this level, Gold prices could fall to the 2,560 dollar range, followed by the 2,537-2,536 dollar range, which corresponds to the November low. If this low is also lost, the downward trend may extend further to the psychological barrier of 2,500 dollars, followed by the very important 200-day SMA support level, currently around 2,472 dollars.

Get a sneak peek at important financial events, discover investment opportunities early! Open futubull> Market> USA Stock>Financial Calendar/Selected macroeconomic data, seize the investment opportunities first!

Editor/rice