The core PCE price index is expected to double in January month over month

Tomorrow, the government will release the Fed’s preferred metric for gauging inflation, the core Personal Consumption Expenditure price index. The most recent forecasts are anticipating that core inflation on a month-over-month basis will double from 0.2% to 0.4%. Compared to one year ago (Jan. 2023) the core PCE came at 0.5%. For the second half of 2023, core inflation was only 0.1%. With only September (0.3%) and December (0.2%) running hotter. 

Financial markets across the board for the majority of asset groups declined in anticipation of the key economic data coming out tomorrow. All the major U.S. equities experienced fractional declines. The DJIA industrial average lost 23.39 points (-0.06%), the S&P 500 lost 8.42 points (-0.17%), the NASDAQ lost 87.56 points (-0.55%), and lastly the Russell K lost 15.80 points (-0.77%).

Precious and industrial metals except copper all experienced price declines today. Spot gold declined by $0.40 today and is currently fixed at $2043.70. Silver declined by $0.09 and now is currently valued at $22.66. Platinum lost $13.4, and palladium declined by $18.20, which was the largest percentage decline of the precious metals group. 

Although it is almost a certainty that the Federal Reserve will maintain its benchmark interest rates at current levels, the fact is that Federal Reserve members will certainly be influenced by an uptick in inflation. Also, a report indicates an upward revision to the fourth quarter growth estimate which could be highly supportive of the Fed’s decision to delay the first interest rate cut. They will also consider the most recent figures on retail and wholesale inventories and the U.S. trade balance as they come due shortly.

Markets for the most part are concerned that strong economic data lessens the likelihood of a rate cut sooner than currently expected. And then there is the mounting debt of the United States, which the Federal Reserve and the Treasury have voiced major concerns that current levels are unsustainable and could be one of the largest economic issues the U.S. faces in the upcoming decade.

In an interview on Kitco news Charles Payne host of Making Money on the FOX Business network reinforced recent statements by the Federal Reserve Chairman Jerome Powell who expressed concerns that the U.S. debt at its current level is unsustainable. However, according to guest Charles Payne the U.S. Central Bank is a major component of that problem.

Recently, Chairman Powell expressed his concerns on 60 Minutes and issued his warning on the current level of debt in the United States. He criticized lawmakers for their ongoing policy in which they borrow money, creating more debt for future generations and most importantly creating an unsustainable fiscal policy. In his words, it is time for “an adult conversation”. During the 60 Minute interview, Powell said. “In the long run, the U.S. is on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy … We're effectively borrowing from future generations … It’s time for us to get back to putting a priority on fiscal sustainability. And sooner's better than later.”

Collectively these factors are undeniably troublesome, or alarming. There does not seem to be a clear path to resolving many of these issues, which is why tomorrow’s inflation report will be important.

As of 5:20 PM ET gold futures basis the most active April contract is fractionally lower currently fixed at $2042.70 after factoring in today’s decline of $1.40.

Wishing you as always good trading,