Will the inflation data give the Fed a good reason to lower rates?

Will the inflation data give the Fed a good reason to lower rates?

Consumer price inflation data released on Wednesday could provide a rationale for the US Federal Reserve's interest rate cuts, after weak US job growth numbers have clouded the outlook for the Fed. largest economy in the world.

"The rate of inflation is the determining factor," said Jon Hill, BMO Capital Markets' rate strategist. "If you start seeing disappointing inflation as well, then the game is over. The Fed will enter a reduction cycle. "

Jay Powell, chairman of the Fed, has already pledged to "act appropriately" to maintain the current economic expansion, which has been perceived as an allusion to the fact that the central bank is planning to go ahead. to relax its monetary policy.

After the sharp drop in employment growth on Friday, the chances of a rate cut in July were 65%, depending on futures prices.

Despite the sharp fall in Treasury yields in anticipation of a Fed rate cut, US 10-year cut-offs – a measure of the market for long-term price expectations – remain moderate at 1.74%, less than the Fed's long-term rates. long-term inflation goal of 2%.

Nevertheless, current price rises have held up well. The core CPI is expected to settle at 2.1% in May, year-on-year.

Some investors believe that reducing interest rates is almost a fact, as the Fed seeks to react to escalating trade wars. Falling inflation could strengthen this view.

The problem is that the breakeven point to the fact that it may take more than just rate cuts to revive the economy, Hill said.

"The surprising thing is the lack of recovery in dead spots," he said. "If one of the reasons for a reduction is to raise inflation expectations, it does not look like it will work." Joe Rennison

Will Turkey's central bank surprise markets again?

If one thing is certain about the Turkish central bank, it is the propensity of the decision makers to surprise the markets.

Economists and investors generally expect the Central Bank of the Republic of Turkey to maintain its one-week repo rate on Wednesday – the bank's benchmark rate of interest rates – at 24%.

The pace of inflation has slowed, rising from a high above 25% last autumn to 18.7%. Central bankers and the government of Recep Tayyip Erdogan have stated that a slowdown in the rate of price growth in the country is a clear sign that a "rebalancing" is under way after the crisis of the lira read the ## 147 ## 39 last year which caused a flight of Turkish badets.

However, some badysts worry that a slowdown in the inflation rate and some recent stability of the currency will push the central bank to operate a premature – and extremely damaging – rate cut.

Erdogan is a well-known critic of high rates, and emerging market badysts have long speculated that he has indirectly pushed decision-makers toward a more accommodative approach.

These concerns have been highlighted several times in recent months. In April, for example, the central bank baffled investors by removing the so-called bias of tightening its political decision – a decision that many badysts have found odd, given the high stakes of a new era. possible reduction of rates.

"Any decision to cut policy rates before inflation expectations are firmly anchored may undermine the value of the lira and exacerbate inflationary pressures," warned last month's Moody's, the agency said. of notation.

Tim Ash of BlueBay Asset Management agreed, saying it would be a "huge bet" for Turkey to reduce the repo rate at this stage. Adam Samson

Will gold continue to push higher?

The golden insects finally have something to celebrate after months of frustration.

After trading in a narrow range for most of the year, the yellow metal suddenly exploded up last week, as the US dollar weakened as expected, the Federal Reserve will cut interest rates because of fears of slower growth.

Gold gained more than 3% during the week to trade for nearly $ 1,350 troy ounces.

The question now is whether it can continue and reach $ 1,400 troy ounce for the first time since 2013.

All will depend on the performance of the US dollar, which has been the world's choice badet for safe havens this year, according to traders.

Commodities denominated in dollars, such as gold, tend to do well when the US dollar weakens, as it makes it cheaper for foreign buyers. As a non-interest bearing badet, gold also tends to be boosted when rates are low or falling. Neil Hume