Federal Reserve chairman Jerome Powell indicated last week that May’s 25-base point rate hike could be the last for a while – meaning all eyes this week were on the latest U.S. Producer Price Index (PPI) data.
Regarded as an inflation indicator by economists, the latest PPI figures show that inflation has begun to cool, further making the case for a change in Federal Reserve Policy.
The new data, issued yesterday (Thursday), gave a 2.3% annual reading. Analysts had expected the figure to be slightly higher at 2.4%. In the immediate aftermath of the report, gold prices surged forwards, hitting a daily high of £1,620 ($2,047).
In addition to the better than expected PPI numbers, additional data confirms that the U.S. labour market is also slowing rapidly. This gives the bulls additional momentum, as it indicates both an upcoming recession and increases the likelihood that the Federal Reserve will pause its rate hike activity. This is something that chairman Powell alluded to just last week, noting that the Feds were ready to shift gear. He said that in future, “The assessment of the extent to which additional policy firming may be appropriate is going to be an ongoing one, meeting by meeting. We have to balance the risk of not doing enough and not getting inflation under control against the risk of slowing down economic activity too much.”
That slowing in economic activity is already in evidence, with more new unemployment claims than had been expected filed in the last week. New weekly jobless claims have increased by 22,000, taking the total number of unemployed to 264,000. This is now the highest rate of unemployment on record since October of 2021.
Economists had expected to see total claims of around 245,000, meaning the actual figure of 264,000 caught many by surprise. The four-week moving average for claims also increased by 6,000 people, confirming an overall upward trend.
The increased number of workers losing their jobs underlines concerns that economic activity is now slowing at a faster pace, with many companies shedding their workers in the face of declining demand and growing price pressures. Often a sign of recession, the leap in unemployment figures is good news for gold as it is likely to stimulate safe-haven demand.
