Markets await the latest inflation data in the United States, tomorrow at 4:30 PM Amman time (5:30 PM Dubai time). The report is considered to be one of most important data points that the Fed relies on in relation to its future monetary policy decisions. Expectations indicate that inflation rose slightly on an annual basis by 3.2%, compared to 3.1% for the previous period. If these expectations are correct, it indicates that inflation is on the rise, following a previous two-month decline.
The chart below explains how inflation has stabilized on an annual basis between 3% - 3.7%. Therefore, breaking either of these levels is expected to largely impact the Fed’s future interest rate path. The Federal Reserve previously indicated that the central bank may reduce interest rates, with markets expecting cuts up to 75 basis points in 2024. This will depend mainly on the economic data.
U.S. Headline Inflation
Scenario 1: Inflation reading higher than 3.1%: This indicates that inflation has risen again, and therefore inflation fears are still entrenched in the economy. This may prompt the Fed to keep interest rates at higher levels for a longer period than previously expected, potentially having a positive impact on the U.S. dollar, while negatively impacting gold and stocks, according to analysts.
Scenario 2: Inflation reading lower than 3.1%: This indicates that the current monetary policy remains successful in pushing inflation closer to 2%, which may encourage the Fed to lower interest rates. According to analysts, this could negatively impact the U.S. dollar while positively impacting gold and stocks.
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