Fed Makes Major Announcement

This week, the global market is focusing on the Federal Reserve's meeting minutes, the September Consumer Price Index (CPI), and the upcoming earnings season.

According to a report by Securities Times, on October 8th local time, several Federal Reserve officials made speeches, including Federal Reserve Governor Adriana C. Kugler, New York Fed President John C. Williams, Boston Fed President Susan M. Collins, and Atlanta Fed President Raphael W. Bostic, among others.

Among them, Kugler stated that she "strongly supports" the Federal Reserve's decision to cut interest rates by 50 basis points last month, with the focus still on inflation. If inflation continues to ease as she expects, she will support further rate cuts.

Kugler said that the Federal Reserve should continue to commit to reducing the inflation rate to the 2% target, but with a "balanced approach" to avoid an "undesirable slowdown" in job growth and economic expansion. "I am closely monitoring the impact of hurricanes and geopolitical events in the Middle East on the economy, as these events may affect the outlook for the U.S. economy," Kugler said. "If the downside risks to employment intensify, it may be necessary to shift policy towards a neutral stance more quickly."

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The dot plot released by the Federal Reserve after the September interest rate meeting showed that officials expect the Federal Reserve to cut rates by another 50 basis points in the remaining two meetings in 2024. Kugler said she would support further rate cuts if "inflation progresses as expected," but she pointed out several risk factors.

Williams said that after the 50 basis point rate cut in September, it would be appropriate for the Federal Reserve to cut rates again "over time." He said, "Currently, I think monetary policy is well positioned for the outlook. If you look at the Summary of Economic Projections, you will find that it is a very good baseline scenario, with the economy continuing to grow and inflation returning to 2%."

Atlanta Federal Reserve Bank President Raphael W. Bostic also said on the same day that despite a recent slowdown in the U.S. labor market, the job market itself has not shown signs of weakness. He further emphasized that although significant progress has been made in dealing with inflation, overall price data has not yet reached the target.

Bostic also said that the Federal Reserve must weigh competing risks when considering the pace of further rate cuts in the coming months. He said that while the risks to inflation have decreased, the threats to the labor market have increased, but the economy remains strong.

The latest data from the CME "FedWatch" tool shows that the probability of the Federal Reserve cutting rates by 25 basis points by November is 86.7%; the probability of a cumulative 50 basis point rate cut by December is 78.1%.

According to Xinhua Finance on the 9th, expectations for the Federal Reserve to continue to significantly cut rates this year have weakened, and the U.S. dollar index and U.S. Treasury yields have gained upward momentum, thereby bringing bearish news to short-term gold prices. As gold prices continue to face pressure from rising, market analysts' "voices" on the gold price phase tending to adjust have begun to increase.Market analyst Fawad Razaqzada from the consulting firm StoneX Group stated that the rationale for a downward correction in gold prices is growing stronger, yet geopolitical tensions remain high, which could still provide significant support for gold prices at lower levels.

Chief Market Analyst at KCM Trade, Tim Waterer, mentioned that due to the rise in the US dollar and bond yields, gold has lost some momentum. However, geopolitical conflicts may suppress the downside risks for the safe-haven asset, gold.

On the economic data front for Tuesday, the US trade deficit narrowed to its lowest level in five months in August, due to an expanded surplus in services trade and a rebound in goods exports.

Data released by the US Department of Commerce on Tuesday showed that the trade deficit in goods and services shrank by 10.8% compared to the previous month, to $70.4 billion. The reduction in the trade deficit by $8.5 billion in August was the largest since March 2023. The latest figures were in line with the median forecast of economists surveyed by Bloomberg. Exports rose by 2%, while imports fell by 0.9%. The data was not adjusted for inflation.

A significant drop in the import value of industrial supplies affected the overall imports, primarily due to the decline in crude oil prices during the month. The import value of consumer goods increased, possibly reflecting US retailers' increased overseas orders before the planned strike by workers at the country's main ports.

US goods exports surged, driven by increased exports of capital goods and motor vehicles.

Although the drag on GDP from goods and services trade in the second quarter reached its highest level since early 2022, the latest net export data indicates a reduction in impact. Adjusted for inflation, the goods trade deficit narrowed to $88.6 billion in August, the smallest deficit since February.

This week, the market is closely watching the CPI data to be released on Thursday. The report is expected to show that the core inflation rate for September remains at 3.2% year-on-year, unchanged from August.