On March 1st the US economy gave the Fed an inflation scare. That’s when the Fed’s favorite inflation measure, the PCE Price Index, reported a breakout higher.
Most Fed officials scrambled to announce they were flipping from dove to hawk. But that was then.
Yesterday morning however, the CPI release calmed the Fed enough so that they stuck to their pre-March 1st original plans. The real news yesterday was that, after all that huffing and puffing from Fed officials for the last couple of weeks, in the end, aside from the quarter-point rate increase which was widely expected, not much really changed.
That gives gold the green light to push higher.
Above, a chart of the Fed Funds Futures. A drop means futures are expecting a greater chance for a higher Fed Funds rate. March 1st saw the biggest drop. That’s when the PCE Price Index reported its breakout
On March 1st the street saw PCE jump from 0 and .1 to .3. Some Fed officials may have had a preview. This was the main reason Fed officials felt the need to say something publicly about a hike.
But that was then. Comes yesterday, March 15th, and that PCE report was put to bed by the CPI release. February CPI came in slower than the previous read.
That’s important because both times during the last year or so that CPI was strong, the Fed’s inflation measure followed with strength (as can be seen in the grid above).
With a heads-up from the slower CPI reading released just hours before the rate decision announcement yesterday, the Fed was able to calm down and hike.
As we explained last week, if gold, via SPDR Gold Shares (NYSE:GLD), doesn’t have to contend with multiple, unexpected rate hikes it can go higher. We noted than that higher rates can cause gold to go lower. Since the Fed did not change forecasts thanks to a more benign CPI number, gold is able hold up.
– > One big, fat, Fed no-change helped gold hold yesterday. That’s a bullish fundamental change, reversing a key fear after a high PCE release on March 1st. Looks like CPI saved gold bugs yesterday.