US and European futures are trading higher after a bumpy session yesterday, The Fed’s Chairman, Jerome Powell, has given a clear message that if traders think that the Fed is done with the process of interest rate hikes, then they definitely need to adjust their expectations as economic data suggests that they can push the curve a lot more. Now, the expectations in the markets are no longer for the Federal fund rate to be in the range of 4.75%. In fact, many believe that the Fed could actually end up pushing the interest rate all the way to 5.25%.
On Tuesday, the Chairman of the Federal Reserve, Jerome Powell, said that inflation is starting to drop, despite his expectation that it would be a protracted process. He also issued a warning that interest rates might climb more than the markets predict if the economic data doesn’t cooperate.
During a presentation in Washington DC, the head of the nation’s central bank said that “the disinflationary process, which is the process of bringing inflation down, has started, and it has begun in the goods sector, which is roughly a quarter of our GDP.” However, there is still a long way to go. This is the very beginning of the process.”
Powell said that interest rates might need to be raised if the statistics showed that inflation was running hotter than the Fed had anticipated.
Powell said that “the fact is that we are going to respond to the evidence. Therefore, if we continue to obtain news indicating that the job market is robust or that inflation is higher than expected, it may very well be the case that we have to do more and increase rates more than is priced in.”
In his comments on Tuesday, he did not provide any indication as to when the raises would come to an end, and he predicted that it will most likely take until 2024 before inflation reaches a level at which the Fed will feel comfortable. The inflation rate is now running far higher than the central bank’s objective of 2%, as shown by a number of different metrics.
Powell said that he anticipates inflation to begin to decline, although at a more moderate pace.
This procedure is likely to take quite a while, as was the message we conveyed at the previous meeting. He warned that there might be bumps on the road ahead. “We believe that we are going to need to conduct additional rate rises, as we mentioned, and we think that we will need to retain policy at a restrictive level for a length of time,” the central bank said. “It’s probably going to be bumpy, and we think that we are going to need to do further rate increases.”
Gold prices are likely to remain volatile today as well while investors continue to digest the message from the Fed chairman, who actually stimulated a bumpy ride for the dollar index. Many in the market are now anticipating the possibility that it is highly likely that we are going to see more than one interest rate hike of 25 basis points, which means that the dollar index has more room to surge. Any strength in the dollar index basically represents a threat to the gold bulls who have been thinking that the glory days for the dollar index are well passed. However, if inflation readings do show a better performance, we could see a complete shift in the current narrative.
For today, traders are going to be focusing on Fed speeches as a number of Fed officials are slated to speak. Their opinions would not matter that much now especially given that we heard from the Fed chairman only last night. However, what these speeches and events do is add more noise to the market. In simple terms, this means that any further hawkish comments could push the gold price to retest its support at 1850, while any dovish comments may aid the process of gold prices moving higher and may retest the price of 1,900.
The cryptocurrency king, BTC, continues to consolidate, and it seems to be stuck in a range for now. For the past number of days, the price is fluctuating between the price level of 24,230 while the downslide is limited to 22,490. We need to break out of this range in order to establish a new trend which currently seems to be difficult.