In July, the PPI in the United States surged 3.3% year-on-year, far exceeding the market expectation of 2.5%, marking the largest increase in nearly three years, with a comprehensive rise in the costs of goods and services!
This data directly impacts the market's expectations for aggressive rate cuts by the Federal Reserve, as the probability of a 50 basis point rate cut in September, which some traders had been betting on, has significantly decreased. St. Louis Fed official Musalem clearly stated that the current economy is close to full employment and inflation is above target, making a half-percentage point cut unnecessary, further cooling market enthusiasm.
Market predictions for a September rate cut have shifted from a 50 basis point cut to a 25 basis point cut, with the probability dropping from 94.3% to 90.4%. Comerica Bank Chief Economist Bill Adams pointed out that tariffs are raising corporate transaction costs, which will ultimately be passed on to consumers, adding resistance to the Fed's actions in September. However, he emphasized that future employment data will have a greater impact on policy adjustments; if employment performance is weak, a rate cut could still be advanced.
The PPI data exceeding expectations has sparked market concerns about persistent inflation, leading to a resurgence in demand for the dollar, while spot gold fell to around $3330/ounce on Thursday, hitting a new low for the week. Previously, the mild CPI data for July had briefly boosted gold prices, but the unexpectedly high PPI directly reversed the trend. Saxo Bank's Ole Hansen analyzed that the rising PPI could drive up core PCE inflation, forcing the Fed to be more cautious about rate cuts, putting pressure on gold.
Currently, the market focus has shifted from the extent of rate cuts to whether a rate cut is necessary. Although the PPI data complicates the case for policy easing, if subsequent employment data falls short of expectations, the Fed may still opt for a small rate cut to balance risks. In the short term, inflation resilience may continue to disturb market expectations, and the performance of safe-haven assets like gold will depend more on the Fed's actual actions and economic data performance.
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