We Are Raising Rates, Recession or Not, Gold Daily Analysis

Today, while speaking at the annual meeting of the European Central Bank in Sintra, Portugal, Chairman Powell made it clear that the Federal Reserve is dedicated to decreasing inflation, even if it necessitates hiking interest rates to levels that threaten economic development. His remarks reaffirmed that the Federal Reserve will "do whatever it takes" to return inflation to the 2 percent objective with sustained rate rises.

The chairman admitted that "there is a danger" that the Federal Reserve's new monetary policy may lead to an economic contraction and recession, but he stated, "I would not agree that this is the greater risk. The worse error would consist in failing to restore price stability."

You should only trade with capital that you can afford to lose while trading derivatives. The trading of derivatives may not be suitable for all investors; thus, you should ensure that you fully comprehend the risks involved and, if required, seek independent counsel. Before entering into a transaction with us, a Product Disclosure Statement (PDS) can be received through this website or upon request from our offices and should be reviewed. Raw Spread accounts provide spreads beginning at 0 pips and commissions of $3.50 every 100k transacted. Spreads on standard accounts begin at 1 pip with no additional commission fees. CFD index spreads begin at 0.4 points. This information is not intended for inhabitants of any nation or jurisdiction where distribution or use would violate local law or regulation.

Since current predictions indicate that tomorrow's Personal Consumption Expenditures price index (PCE) data will reflect that inflation continues to exceed the Fed's 2 percent inflation target for May by more than thrice. If these projections are accurate, the chance that the Federal Reserve will raise interest rates by 75 basis points at the July 26-27 FOMC meeting will grow. Recently, the Federal Reserve amended its "dot plot" to represent about twice the previous inflation target for the end of the year of 1 12 to 1 34 percent to a minimum of 3.4 percent.

Although the chairman downplayed worries of a recession by stating that the economy is in "very good form" and would be able to withstand tighter lending conditions while avoiding a recession or even a big rise in the unemployment rate, he added a crucial caveat. The longer high inflation persists, the route to a "soft landing" would become "considerably more difficult," according to him.

According to recent statistics, inflationary pressures will stay quite high. Additionally, the BEA announced today that "Real gross domestic product (GDP) declined by 1.6% annually in the first quarter of 2022, following a 6.9% gain in the fourth quarter of 2021. The drop was revised downward by 0.1 percentage point from the May "second estimate."

Why Is The Dollar Appreciating?

The combination of Chairman Powell's words and expectations implies that inflation, as measured by tomorrow's PCE price index data, has resulted in a very strong dollar in anticipation of rate hikes. The dollar's rise resulted from market players focusing on interest rate hikes rather than present inflationary pressures.