Federal Reserve officials say "closer" to rate cut as inflation trajectory improves and labor market more balanced

Forex Platform- Gold prices rose and fell back on Wednesday. From a fundamental perspective, there is no obvious bearish news. The decline in gold prices may be due to the profit-taking of bulls. Relatively speaking, Federal Reserve officials continued to make dovish speeches this week, the latest US real estate data also performed poorly, the Federal Reserve Beige Book showed that companies expect future growth to slow down, the labor market continued to weaken, the US dollar index fell to a new low in nearly four months, and the US bond yield continued to weaken. These have limited the short-term correction space for gold prices and are expected to provide opportunities for gold prices to rise further.

(One-hour chart of gold prices)

Federal Reserve Beige Book: U.S. businesses expect future growth to slow, labor market continues to weaken

US economic activity expanded at a moderate to moderate pace between late May and early July, with companies forecasting slower growth ahead and reporting signs of continued weakness in the labour market, echoing a shift in tone from the Federal Reserve, which has been assessing the extent of the slowdown in labour demand more closely to ensure it does not wait too long before cutting interest rates.

The Federal Reserve's latest assessment of the health of the economy also showed that inflationary pressures rose modestly, with most Fed districts reporting that input costs were beginning to stabilize.

The Federal Reserve said in a survey released on Wednesday that "economic activity in most regions maintained a moderate to moderate pace of growth during the reporting cycle," and it surveyed business contacts in 12 regions before July 8.

The survey pointed out that while seven regions of the Federal Reserve reported some increase in economic activity, five regions reported flat or declining economic activity, three more regions than in the previous reporting period, and business forecasts were bleak.

The Federal Reserve survey said that "due to the upcoming election, domestic policy, geopolitical conflicts, and inflation, expectations for economic performance over the next six months are for slower growth."

The report shows that the upcoming US Presidential Election, especially in November, is increasingly attracting the attention of business contacts. The Atlanta Fed said the uncertainty of the election outcome appears to be weighing on investment activity in the renewable energy sector, while the Dallas Fed said the outlook for manufacturing, construction and real estate was affected by factors such as the election uncertainty.

The Federal Reserve releases its analysis roughly every six weeks after Chairperson Jerome Powell and his colleagues have stressed that risks to inflation and employment are now balanced. Earlier on Wednesday, two Fed policymakers said they were "getting closer" to cutting interest rates, remarks that appeared to set the stage for lower borrowing costs in September.

Fed officials were battered by higher-than-expected inflation in the first half of the year, but they were encouraged by more positive inflation data in April, May and June. The Fed's preferred measure, which is next due on July 26, shows inflation still at 2.6 per cent.

As inflation resumed its downward trend, Federal Reserve officials cited the apparent deterioration in the labor market more forcefully as a reason for the Fed to start cutting policy rates.

Fed officials say "closer" to rate cut as inflation trajectory improves and labor market more balanced

Federal Reserve policymakers said Wednesday that the central bank is "closer" to cutting interest rates, given the improved inflation trajectory and a more balanced labor market.

Federal Reserve Governor Paul Waller and New York Fed President John Williams have both pointed out that easing monetary policy is getting closer, a point that Waller emphasized in his speech at the Kansas City Fed and that Williams also expressed in an interview.

Separately, Richmond Fed President Barkin said he was "very encouraged" that the fall in inflation was beginning to widen. "I would like to see this continue," he told a Maryland business group.

Federal Reserve policymakers, including Federal Reserve Chair Jerome Powell, have made comments this week, pointing to their growing confidence that the slowdown in inflation that began last year is continuing, despite a brief pick-up in inflation earlier this year.

Fed policymakers said price pressures appeared to be easing across the board, with lower commodity prices, slower housing cost increases, more modest wage growth, and a long-awaited easing in service sector price inflation.

Williams and Waller appear to have ruled out a rate cut at the Fed's July 30-31 policy meeting, a view reflected in financial marekt, which is currently priced in by markets as less than a 5% chance of a rate cut at this meeting.

Waller listed September through December as a potential time period when conditions are ripe for a rate cut, omitting July.

"We're actually going to learn a lot between July and September," Williams said in an interview. "We're going to have two months of inflation data."

Karim Basta, chief economist at III Capital Management, wrote that all three policymakers who spoke on Wednesday "pointed to September" to begin easing policy.

Financial Marekt agreed, continuing on Wednesday to bet that the Fed will cut borrowing costs again in November and December, cutting the target range for the benchmark policy rate to 4.50% -4.75% by the end of 2024. The Fed has maintained the target range for the policy rate at 5.25% -5.50% for the past year.

Waller said in May that he would need to see several more months of improved inflation data to convince him that a rate cut was necessary. He said last week's data showed the first month-on-month decline in the consumer price index in four years, "the second consecutive month of very good news."

He laid out three possible scenarios for inflation in the coming months. Mr. Waller said two of the most likely scenarios suggested that inflation would continue to fall toward the Fed's 2 per cent target in the coming months, although in one scenario it would fall faster and more consistently than in the other. The third and least likely scenario was that inflation would reaccelerate and interest rates would remain unchanged.

Nonetheless, Waller said, "Given that I think the first two scenarios are the most likely to occur, I think the time to lower the policy rate is getting closer."

Williams, who is also vice chairperson of the FOMC (FOMC), said: "I feel like the last three months - and I would have included June based on what we've seen - seem to have brought us closer to the downward trend in inflation that we're looking for. I'd like to see more data to increase confidence that inflation is moving sustainably towards the 2 percent target. We now have several months of good data."