Gold prices saw a recovery late in Wednesday’s North American session, after a surge in U.S. inflation data fueled expectations that the Federal Reserve (Fed) may maintain its restrictive stance for longer. At the time of writing, XAU/USD was trading at $2,897, virtually unchanged.
The rally for the non-yielding metal halted a downward trend following the release of U.S. inflation data, which showed prices had risen by over 3%, signaling that the Fed’s pause on interest rate cuts could extend longer than previously anticipated. The higher-than-expected consumer price index (CPI) has raised concerns that inflationary pressures remain entrenched, prompting a reassessment of the Fed’s future actions.
Last week, futures markets were pricing in 40 basis points (bps) of rate cuts by the Fed’s December meeting. However, following the CPI report, traders adjusted their expectations, now forecasting just 30 bps of easing by year-end.
In response to the inflation report, U.S. Treasury bond yields and the U.S. dollar both climbed, though the dollar later gave up some of its post-CPI gains, with the U.S. Dollar Index (DXY) sitting at 107.98, virtually unchanged.
Federal Reserve Chair Jerome Powell, speaking after his testimony before the U.S. House of Representatives, emphasized the ongoing need for restrictive monetary policy, stating, “The job on inflation is not completed… so we want to keep policy restrictive for now.”
His remarks were echoed by other Federal Reserve officials, including Atlanta Fed President Raphael Bostic, who suggested that if the economy follows expected trends, inflation could return to 2% by 2026. Chicago Fed President Austan Goolsbee added that continued high inflation readings, such as January’s, would confirm that the Fed’s work on inflation is far from over.
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