Could CPI data change the Fed’s interest rate path?
After a recent 25 basis point rate cut, the Fed is expected to remain dovish, although the likelihood of another cut in December has fallen to 62% from last week’s 70%, according to CME’s FedWatch Tool. Lower interest rates would generally support silver as a non-yielding asset, driving more investor interest.
Analysts, including Peter Fertig of Quantitative Commodity Research, believe silver’s value will remain solid over the medium term if the Fed continues to ease. Today’s CPI release will be crucial for the Fed’s near-term policy, with an unexpected rise in inflation potentially dampening expectations for rate cuts.
What do government bond yields tell us?
Bond yields have fallen slightly ahead of the CPI report, suggesting market caution as traders weigh the potential impact of inflation data on interest rate policy. Last week’s rise in interest rates, driven by post-election budget expectations, underlined concerns about potential inflation growth. If the CPI report matches or exceeds the forecast, bond yields and the dollar could rise, weighing on silver prices. However, a lower CPI could lower interest rates and favor silver as a safe haven.
Short term market forecast
Silver is primed for volatility based on the CPI data. If inflation reaches or exceeds expected 2.6%, it could dampen prospects for further Fed rate cuts, strengthening the dollar and putting pressure on silver. However, a softer-than-expected CPI would strengthen the case for additional rate cuts, likely boosting silver as a hedge against easing. In the short term, the outlook for silver is neutral to slightly bullish, with $30.67 as a critical support level. Traders will closely monitor the impact of the CPI on Fed policy to gauge silver’s potential for sustainable gains.