- Data on Tuesday revealed that consumer price pressures increased by 0.2%.
- Market participants are pricing a 98% chance of the Fed cutting interest rates in September.
- Trump threatened a lawsuit against Powell.
Gold prices rose on Thursday as the likelihood of a September Fed rate cut rose after downbeat US inflation figures. However, the move was subdued as risk appetite remained high after the US-China tariff extension. At the same time, progress in talks between Russia and Ukraine has lowered demand for safe-haven assets.
Data on Tuesday revealed that consumer price pressures increased by 0.2%, in line with estimates. Still, it was cooler than the previous reading of 0.3%. Meanwhile, the annual figure increased by 2.7%, below the expected 2.8%.
The soft figures supported bets for a rate cut in September, especially after poor employment figures. Additionally, it gave policymakers the confidence to call for cuts since Trump’s tariffs have had a limited impact on inflation.
However, it worsened the conflict between Trump and Powell. The US president feels the Fed should have acted sooner. He criticized Goldman Sachs for predicting that his tariffs would affect consumer prices.
Fed rate cut odds (Source: Bloomberg)
After the inflation report, market participants were pricing a 98% chance of the Fed cutting interest rates in September. Some experts pointed out the possibility of a bigger rate cut to make up for the delays.
“Market participants are starting to debate if the Fed will do a 50 basis point cut at its September meeting following the comments from US Treasury Secretary Bessent yesterday, with a focus on incoming weaker US economic data supporting that,” said UBS commodity analyst Giovanni Staunovo.
Bessent said he was hopeful that Stephen Miran would be ready to vote in the Fed by September. Moreover, he said the central bank might need to cut rates by 50-bps to make up for lost time.
Meanwhile, Trump threatened a lawsuit against Powell, claiming poor management of renovations at the Fed headquarters. However, all this was likely frustration that the Fed Chair had not yet lowered borrowing costs.
The rise in rate cut bets weighed on the dollar, which collapsed to a two-week low. As a result, gold became cheaper for foreign buyers.
However, the rally in gold was subdued due to a recent decline in safe-haven demand. The US and China avoided another trade war by extending their truce for another 90 days. Meanwhile, traders are watching talks between Russia and Ukraine in the hopes of a peace deal.
