Today the BLS (Bureau of Labor Statistics) will publish the latest inflation report in relation to the PCE index for September 2022. This will be the most recent inflation data the Federal Reserve will receive and will therefore be a key component in deciding the size of the next rate hike at the Federal Open Market Committee meeting next week.
According to the CME FedWatch tool, there is an 88% chance that the Fed will raise rates by 75 basis points, down from yesterday's forecast of 92.5%. This will raise the Fed's base rate between 375 and 400 basis points at the FOMC meeting next week.
According to Bloomberg News, economists polled predict that, compared with last year, the PCE index will rise by 6.3% in September.
"Excluding food and energy, the figure is expected to rise by 0.5% compared to August and by 5.2% from September 2021. The higher forecasts follow government data released earlier this month, which show that a key indicator of core consumer prices accelerated to a 40-year high in September.
In an article written by Jessica Menton of Bloomberg News, the biggest question facing investors and traders is: "Is multi-year inflation nearing a peak, or will prices continue to rise... Traders are keeping a close eye on the Federal Reserve's preferred inflation rate.
The PPI will help determine if there will be another 75 basis point interest rate hike by the central bank at its meeting next week."
Although her article focused on Wall Street and stock investors, her statements give a clear picture of other asset classes, including gold and silver.
Thomas Martin, senior portfolio manager at Globalt Investments, said: "The Fed is laying the groundwork to end excessive rate hikes if inflation data supports it. But if this does not happen, they will be ready to continue their big campaigns after November.
Unlike previous trading days, yesterday's dollar strength was negatively correlated with gold prices. The dollar rose 0.79%, with the dollar index currently at 110.87.
This means that the partial decline in the price of gold would have been much larger had the dollar not added about 8/10 percent of its value.
Market participants are also considering how the Fed will take into account yesterday's government report, which showed third-quarter GDP rose 2.6% from an estimate of 2.3%, expanding faster than expected. It is also clear from the report that this year the US economy experienced a period of positive growth for the first time. This led to a decline in gold prices after the release of yesterday's GDP report.
The third-quarter GDP report included the most recent data on annual federal interest payments, indicating they had increased to $736.5 billion. This set a new record for annual interest payments on US government debt.
According to US Debt Clock.org, the US national debt is currently over $31 trillion and is unsustainable. The higher interest rates set by the Fed only exacerbate this problem. However, the current level of government debt and the high cost of servicing only interest rates are creating extremely optimistic market sentiment for gold.
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