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On April 27th, Barclays analysts stated in a report that with inflation remaining high, the Federal Reserve is expected to keep the target range for the federal funds rate unchanged at its meeting this week, but a rate cut is still possible this year. The analysts said, "In a highly uncertain environment, the Fed tends to remain on hold. Strong demand and still relatively high inflation support its patience, and policymakers have also signaled a diminishing confidence in further rate cuts in the near term." The analysts indicated that if inflation falls as expected, the Fed is expected to gain sufficient confidence to begin easing policy around September. "We still expect it to cut rates this year." According to LSEG data, the money market currently prices in a 10 basis point rate cut by the Fed in 2026.The Philippine Department of Energy announced that the United States has approved an extension of the exemption period for the Philippines to purchase Russian oil and petroleum products.Toyota Motor Corp. reported a sales decline in March as demand for its best-selling RAV4 model weakened ahead of a facelift, while the conflict in Iran threatened to cut off key supplies, forcing the manufacturer to potentially reduce production. The company said Monday that global sales (including those of its subsidiaries Daihatsu and Hino) fell 5.8% year-on-year to 983,126 vehicles in March, while global production rose 3.9% to 1.02 million vehicles. These figures suggest that the worlds largest automaker is managing to stay afloat despite rising prices for raw materials such as aluminum and the base cost of auto parts due to the turmoil in the Middle East. Suppliers are preparing for shortages that could last for months, even if the Strait of Hormuz reopens and shipping returns to normal. Refineries need time to resume operations, and shipping companies need to digest the congestion caused by hundreds of ships stranded in the Persian Gulf. Major supplier Denso Corp. said in March that the ongoing conflict had reduced Japans monthly auto production by approximately 20,000 vehicles.Japans leading economic indicators for February came in at 1.3% month-on-month, compared with 0.3% previously.Japans leading indicator final reading for February was 113.3, compared to 112.4 in the previous month.

Gold Analysis – A Dreadful Forecast for the First Quarter of 2022 by the Federal Reserve Bank of Cleveland

Drake Hampton

Mar 31, 2022 10:10

Analysis of the Gold Price 

Gold prices rose today after falling to a low of roughly $1886.90 yesterday. This price point is crucial because it correlates to the 61.8 percent Fibonacci retracement level. The data set used to calculate the Fibonacci retracement series begins in late January with gold trading at $1779.10 and ends on March 8, with gold trading at $2078, just $10 below the record high. Between the end of January and the first week of March, gold gained around $300.

 

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Gold was able to gain $300 in the face of a tremendously aggressive Federal Reserve that is expected to intervene to stop inflation from spinning out of control.

Forecasts for Federal Reserve Actions, Inflation, and Interest Rates

Chairman Jerome Powell noted during his most recent press conference that the present level of inflation needs a significant adjustment to their current monetary policy on two fronts. To begin, they have committed to increase the Fed Funds rate at each of the remaining six Federal Open Market Committee meetings this year. Initially, it was anticipated that each rate increase would be 14%. Recent data, however, indicate that inflationary pressures are continuing to spiral faster than expected, with no indications of abatement imminent.

 

Today, the FedWatch tool indicates that the probability of a 12% rate hike has decreased somewhat to 66.6 percent, while the probability of a 14% rate hike has increased slightly to 33.4 percent. That may all change tomorrow, when the government announces the February PCE inflationary index.

Forecasts for the PCE and CPI Indices 

Currently, the Federal Reserve Bank of Cleveland has provided its PCE and CPI index estimates and predictions. Their projection implies a 0.62 percent year-over-year increase in PCE. Additionally, they issued a forecast for March's consumer price index, which will be revealed next month. Their projection is based on statistics from the Labor Department, the Bureau of Economic Analysis, the Energy Information Administration, the Financial Times, and Haver Analytics.

 

According to their analysis, they forecast that the March CPI index would grow 8.41 percent year over year and that the March PCE index will increase 0.75 percent year over year. However, the most worrying prognosis is for inflation in the first quarter of 2022, which they believe would be 9.01 percent more than in the first quarter of 2021.

 

The Federal Reserve is confronting an uncontrollable level of inflation. The war in Ukraine has significantly harmed Russia's and Ukraine's ability to produce and sell grains to the European Union, which will almost surely increase food prices. Russia sends a significant portion of energy goods to the European Union, which will also see significant reductions as a result of Russia's continued pressure on crude oil, gasoline, and natural gas prices.

Impact of Crude Oil on Inflation

Crude oil prices continue to trade comfortably above $100 per barrel, with the most actively traded crude lite futures contract up 3.04 percent to $107.41 per barrel today. Costs will almost surely climb as long as energy and food supplies continue to dwindle. This can only result in an escalation of inflationary pressures.

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