Market participants continue to be laser-focused on upcoming changes to the monetary policy of the Federal Reserve. It is the monetary policy of the Federal Reserve and its challenge of bringing inflation down that has been one of the primary drivers of price changes in the financial markets across the board.

A major component of dollar weakness today was a report out of China indicating that their manufacturing complex is in a period of robust growth. This is a major component of China’s economic reopening following its massive shutdown. Another factor resulting in bearish pressure on the dollar was euro strength.

After four consecutive days in gold traded to a lower high, a lower low, and a lower close than the previous day, traders have witnessed a pivot that began yesterday. Gold futures traded to the lowest value today hitting an intraday low of $1810.80. This follows yesterday’s prior lowest low of $1812.

Gold vs US Dollar Today

The preferred inflation index used by the Federal Reserve; the core Personal Consumption Expenditures (PCE) index jumped to its highest value since last summer. The core PCE increased by 0.6% in January when compared to the prior month, taking the year-over-year PCE to 5.382%. Today’s PCE report was the result of surging consumer spending after a dramatic decline at the end of last year.

Although the Federal Reserve implemented its first interest rate hike approximately one year ago, market participants went through various stages of accepting the new Federal Reserve’s narrative as fact. Oddly there are similarities to the way market participants went through a process of steps before they were able to accept and incorporate the forward guidance of the Federal Reserve.

I know it is a little cliché to use a phrase most recognized from late-night ads hawking everything from pots to knives, to discuss the FOMC minutes released today, but the minutes continue to send the same message to the American public. The Federal Reserve will continue and implement “more” rate hikes until “inflation is clearly on a path towards 2%.”

The Federal Reserve first spoke about its forward guidance at last year’s Jackson Hole Economic Symposium. Specifically, it was Chairman Powell’s keynote speech that delivered the blow to the American public about its intent to raise rates and keep those elevated rates in place until the Fed hits its 2% inflation target.

Tight Monetary Policy for Longer

Recent statements by the more hawkish faction of the Federal Reserve have raised genuine concerns that the current monetary policy to reduce inflation is about to undergo an unwelcome change. Multiple Federal Reserve officials have alluded to reinstating stronger rate hikes at their upcoming FOMC meetings.

Today the U.S. Bureau of Labor Statistics (BLS) released the PPI index report for January 2023.