Key US inflation figures ease pressure on the Fed
The US PCE price index, a key inflation measure closely watched by the Federal Reserve, rose 0.1% monthly in August, bringing annual inflation to 2.2%. This is a notable decline from July’s 2.5% and the lowest inflation level since February 2021. The core PCE, which excludes volatile food and energy prices, also rose 0.1%, pushing the core annual rate up 2.7% come.
These inflation figures came in lower than expected, as economists had forecast an increase of 2.3% for all items PCE and 0.2% for core PCE on a monthly basis. The lower-than-expected inflation numbers provide a clearer path for the Federal Reserve to consider future rate cuts, in line with its 2% inflation target.
The Fed’s shift from inflation control to economic support
Recent developments indicate that the Federal Reserve may be shifting from a focus on controlling inflation to a broader strategy aimed at supporting the economy. Personal income and spending figures for August were weaker than expected, rising just 0.2% each, compared to forecasts of 0.4% and 0.3% respectively. In addition, housing costs saw a significant increase of 0.5%, the largest increase since January, indicating continued inflationary pressures in the sector.
Still, the PCE data could provide breathing room for the Fed to ease monetary policy. The central bank recently cut interest rates by half a percentage point, bringing the federal funds rate to a range of 4.75% to 5%. Fed officials have hinted at the possibility of another half-point rate cut before the end of the year, and markets expect further cuts through 2025 as the Fed looks to shore up a labor market that is showing signs of weakening.
Silver market forecast
With inflation cooling and the prospect of more rate cuts on the horizon, silver could maintain its bullish momentum in the near term. Lower interest rates typically weaken the U.S. dollar, increasing demand for safe havens like silver. However, the metal’s technical overbought position raises the possibility of a correction, especially if profit-taking occurs. Traders should remain cautious as silver could experience volatility as the Fed refines its monetary policy in the coming months.