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Investors speculate on forward guidance of the Fed with little to no clarity from experts

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Gold futures traded to their highest value since April 2022 which led to selling pressure from traders taking profits. Gold traded to an intraday low today of $1906.20 before slightly recovering. As of 3:25 PM EST gold futures based on the most active February contract are currently fixed at $1912.70 after factoring in today’s decline of $9 or -0.47%.

There seems to be genuine angst and concern regarding where inflation will be by the end of the year. The opinions of analysts and economic “experts” contain a varying spectrum of forecasts that market participants are having a difficult time sorting through the wide range of predictions.

At one end of the spectrum, analysts are forecasting that inflation will decline to 3% by the end of 2023. According to an article in Yahoo News Mikael C. Bergbrant, Ph.D., Associate Professor of Finance at St. John’s University said, “I expect that the Fed’s monetary tightening will start to have a strong impact next year, and I would expect inflation to be substantially reduced from current levels.”

In an article titled, “Experts: How the Economy Will Change by the End of 2023”, author Andrew Lisa cited that, “Both Forbes and The New York Times report that analysts are echoing the Fed in predicting that the inflation rate likely will fall to 3% by the end of 2023 — but the Times points out that many of those same analysts were wrong about 2022.”

Experts at the International Monetary Fund expect global inflation to have fallen to 4.7% by the end of 2023.

However, some analysts believe the worst is yet to come and that inflation will not only remain elevated throughout 2023 but remain at elevated levels for at least the next 10 years. According to JPMorgan Asset Management's chief investment officer Bob Michele, “inflation is likely to remain sticky” resulting in the Federal Reserve raising its benchmark rate to top 6% this year. Furthermore, he believes that that will spark a recession warning that the Fed’s “tightening would eventually bite.”

Christian Mumenthaler, the Chief Executive Officer at Swiss Re during an interview at Davos 2023 said that “inflation won’t fall back to a low level for at least 10 years”.

In an interview with Bloomberg news today J.P. Morgan’s asset management CIO framed the dilemma the Federal Reserve is faced with saying, "The equation is: inflation doesn't come down until wages do. Wages don't come down until unemployment rises. Unemployment doesn't rise unless we are in a recession.”

With such a wide range of economic forecasts and predictions it is easy to understand why market participants have lost clarity regarding where inflation will fall to by the end of the year.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer