The unexpected slowdown in inflation shifted expectations for a possible October Fed Funds rate hike from about 45% to about 36-38% and 70% last week. An increase in the Federal Funds rate is expected to negatively impact all interest rate-sensitive areas of the economy and increase gold and silver prices.
John Williams, President of the New York Fed, said he does not see a reason for the Fed to increase rates from current levels in the near term. According to fed funds futures markets, there is a high probability that the fed funds rate will increase before the end of the year.
The context around prices hasn’t been great. Long Term U.S. Treasuries are still at high levels. The dollar has been moving up, and along with high inflation, has limited the upside of gold and silver.
Next, a focus will be on the U.S. Nonfarm Payroll report on Friday. The report is expected to show less hiring in the month of August. Currently, unemployment is at 4.1% and is expected to stay the same. A worse report would probably show that the Federal Reserve won’t increase rates in the near future. A better report would probably show that the Fed could increase rates in October.
Uncertainty because of the situation with Iran isn’t helping. They are saying that they will not renew a ceasefire with Iraq. If the ceasefire is not renewed, there could be an increase in oil shipments. If this happens, there could be another increase in inflation.