Market News Spot gold strengthens, the dollar continues to hit a new four-week low, and the FED decision-makers are divided on this
Spot gold strengthens, the dollar continues to hit a new four-week low, and the FED decision-makers are divided on this
On Tuesday (May 24), spot gold held firm, as the U.S. dollar index continued to hit a new low of 101.735 since April 26, and investors continued to reduce their positive expectations for the economy brought about by the Fed's aggressive interest rate hikes. There are differences on how to adjust the pace of interest rate hikes after that. According to market expectations, the Fed will raise interest rates to a range of 2.75%-3% by the end of the year. But some say the Fed will cut interest rates after July.
2022-05-24
9803
On Tuesday (May 24), spot gold held firm, as the U.S. dollar index continued to hit a new low of 101.735 since April 26, and investors continued to reduce their positive expectations that the Fed’s aggressive interest rate hikes would bring the economy. There are differences on how to adjust the pace of interest rate hikes after that.
At GMT+8 20:23, spot gold rose 0.16% to US$1,856.44 per ounce; the main COMEX gold futures contract rose 0.41% to US$1,855.3 per ounce; the US dollar index fell 0.03% to 102.046.
The Federal Reserve has raised interest rates continuously since March this year, raising the cost of short-term borrowing from near zero to the current 0.75%-1%. Fed officials generally support a 50-basis-point increase in interest rates at their June and July meetings.
Policymakers are divided over how the Fed will act after that. According to market expectations, the Fed will raise interest rates to a range of 2.75%-3% by the end of the year. But some say the Fed will cut interest rates after July.
Bostic: Rate hikes should be slowed after July
Atlanta Fed President Bostic said that once the Fed does what Chairman Powell has hinted (50 basis points each in June and July), "Then it might make sense to pause rate hikes in September. I think a lot depends on the fundamental dynamics we start to see, including the Fed trying to control inflation and the impact of rate hikes on the economy."
Despite the risk that the central bank may have to act more aggressively, the challenge for the Fed is to tighten policy to contain inflation at more than 40-year highs without tipping the economy into recession. "I'm an optimist and I assume there will be a clear signal that inflation is starting to turn lower by then," Bostic said.
Bostic expects the federal funds rate to be in the 2% to 2.5% range by the end of 2022, and "the economy's response to rate hikes will accelerate in the coming months. If we don't [adjust the rhythm in time], we risk exceeding The market has found a balance."
It is unclear how the upward pressure on prices will evolve in the coming months, and to complicate matters, the Fed will also begin to shrink its nearly $9 trillion balance sheet next month, which is even more difficult than the last time the Fed reduced its balance sheet. turmoil.
The bearish case for the dollar comes amid speculation that the Federal Reserve's aggressive monetary normalization measures will lead to a "hard landing" for the U.S. economy. A weaker dollar helped gold break above the 200-day SMA, which is constructive for gold bulls.
George: Whether to adjust the pace of interest rate hikes depends on the data
Kansas Fed President George said that she expects the Fed to raise the target interest rate to about 2% by August, but how to move further after that, George did not give a specific path preference.
"Fed policymakers have underscored their commitment to act quickly to restore price stability ... this is the pace of a major change in the policy environment, and whether there is a significant slowdown in inflation will inform how to tighten policy thereafter," George said.
George pointed out that the new crown pandemic has changed the U.S. economy in a number of ways, with labor supply being much more constrained than expected, service industries struggling to increase capacity after massive layoffs early in the crisis, and trillions of dollars in excess household savings that could put the Fed at risk. The job of suppressing demand becomes more challenging.
George also pointed out that the U.S. economy faces headwinds such as the Russian-Ukrainian war, and it is difficult to judge how the headwinds will lead to inflation, which may hit global growth and reduce inflationary pressures, or may further undermine world production capacity and increase inflationary pressures, "The Fed raises interest rates. It can only dampen demand, not supply chain bottlenecks that also weigh heavily on inflation, and these factors, along with the Fed itself, will affect the progress of monetary policy and require continued careful monitoring.”
Selling pressure in the gold market appears to have eased amid growing concerns about how the U.S. economy will respond to rising interest rates against a backdrop of slowing global growth as the Fed has a tricky task ahead.
On the hourly chart, the price of gold has started an upward iii wave from $1,807, rising above the 100% target of $1,857, and is expected to further touch the 138.2% target of $1,876. Wave iii is a sub-wave of the up (i) wave that started at $1786.
At GMT+8 20:23, spot gold rose 0.16% to US$1,856.44 per ounce; the main COMEX gold futures contract rose 0.41% to US$1,855.3 per ounce; the US dollar index fell 0.03% to 102.046.
Disagreement among Fed policymakers
The Federal Reserve has raised interest rates continuously since March this year, raising the cost of short-term borrowing from near zero to the current 0.75%-1%. Fed officials generally support a 50-basis-point increase in interest rates at their June and July meetings.
Policymakers are divided over how the Fed will act after that. According to market expectations, the Fed will raise interest rates to a range of 2.75%-3% by the end of the year. But some say the Fed will cut interest rates after July.
Bostic: Rate hikes should be slowed after July
Atlanta Fed President Bostic said that once the Fed does what Chairman Powell has hinted (50 basis points each in June and July), "Then it might make sense to pause rate hikes in September. I think a lot depends on the fundamental dynamics we start to see, including the Fed trying to control inflation and the impact of rate hikes on the economy."
Despite the risk that the central bank may have to act more aggressively, the challenge for the Fed is to tighten policy to contain inflation at more than 40-year highs without tipping the economy into recession. "I'm an optimist and I assume there will be a clear signal that inflation is starting to turn lower by then," Bostic said.
Bostic expects the federal funds rate to be in the 2% to 2.5% range by the end of 2022, and "the economy's response to rate hikes will accelerate in the coming months. If we don't [adjust the rhythm in time], we risk exceeding The market has found a balance."
It is unclear how the upward pressure on prices will evolve in the coming months, and to complicate matters, the Fed will also begin to shrink its nearly $9 trillion balance sheet next month, which is even more difficult than the last time the Fed reduced its balance sheet. turmoil.
The bearish case for the dollar comes amid speculation that the Federal Reserve's aggressive monetary normalization measures will lead to a "hard landing" for the U.S. economy. A weaker dollar helped gold break above the 200-day SMA, which is constructive for gold bulls.
George: Whether to adjust the pace of interest rate hikes depends on the data
Kansas Fed President George said that she expects the Fed to raise the target interest rate to about 2% by August, but how to move further after that, George did not give a specific path preference.
"Fed policymakers have underscored their commitment to act quickly to restore price stability ... this is the pace of a major change in the policy environment, and whether there is a significant slowdown in inflation will inform how to tighten policy thereafter," George said.
George pointed out that the new crown pandemic has changed the U.S. economy in a number of ways, with labor supply being much more constrained than expected, service industries struggling to increase capacity after massive layoffs early in the crisis, and trillions of dollars in excess household savings that could put the Fed at risk. The job of suppressing demand becomes more challenging.
George also pointed out that the U.S. economy faces headwinds such as the Russian-Ukrainian war, and it is difficult to judge how the headwinds will lead to inflation, which may hit global growth and reduce inflationary pressures, or may further undermine world production capacity and increase inflationary pressures, "The Fed raises interest rates. It can only dampen demand, not supply chain bottlenecks that also weigh heavily on inflation, and these factors, along with the Fed itself, will affect the progress of monetary policy and require continued careful monitoring.”
Selling pressure in the gold market appears to have eased amid growing concerns about how the U.S. economy will respond to rising interest rates against a backdrop of slowing global growth as the Fed has a tricky task ahead.
Spot gold at $1876
On the hourly chart, the price of gold has started an upward iii wave from $1,807, rising above the 100% target of $1,857, and is expected to further touch the 138.2% target of $1,876. Wave iii is a sub-wave of the up (i) wave that started at $1786.
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