Powell expects profit margins to normalize too

The Markit PMI data released by the United States was significantly lower than expected. Spot gold surged by more than $10 to $1,845.88 an ounce; Fed Chairman Powell also admitted during his congressional testimony overnight that a recession is possible, but the Fed's continued interest rate hikes are appropriate and will take all necessary measures to restore price stability, even A single 100 basis point rate hike is not ruled out.

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Gold fell after Federal Reserve Chairman Jerome Powell acknowledged that sharp interest rate hikes could tip the U.S. economy into recession. The Fed raised interest rates by 75 basis points last week and is likely to raise rates by another 50 basis points next month. Gold and silver have been trading in a tight range for much of the month as expectations of tighter monetary policy to curb inflation outweighed concerns that it would hurt economic growth.

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The latest forecast from Fed officials shows growth will slow to below trend this year, while the U.S. unemployment rate, currently at 3.6%, will start to rise. Meanwhile, they now expect inflation to fall to just 5.2% by the end of the year. Powell said the Fed was not trying to create a recession to stop inflation, but was going all-in on prices. "We're not trying to cause and I don't think we need to cause a recession." But he conceded that a recession is certainly possible, and the past few months Something is happening around the world that makes it more difficult to achieve the goal (ensuring no recession and lowering inflation).

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Fed Chairman Powell: As the economy returns to normal, we expect profit margins to normalize as well. The spike in inflation was concentrated in industries with high demand and limited supply. The labor market continues to heat up. We need sustained periods of maximum employment and lower inflation is necessary. The Fed's commitment to fighting inflation is "unconditional." It is much harder to reduce inflation without affecting the labor market. Compared with the impact of interest rate hikes, the impact of the shrinking balance sheet is minimal.

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The Fed's current actions are still following market expectations, and its ability to control inflation may be limited, and inflation may remain high for a long time in the future. Even if short-term nominal interest rates continue to rise, long-term U.S. bond yields such as the 10-year term will not rise as much as the short-term, or implied concerns that the U.S. economy will turn into a recession in the future. On the whole, the short-term monetary tightening path will still make gold fluctuate repeatedly, and the direction of operation is not so clear; however, the current and future economic cycle is moving towards a stagflation-recession cycle. with greater certainty.

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The latest data from the Chicago Mercantile Exchange Group's gold futures market showed that gold's overnight open interest fell by only 852 contracts, ending a three-day winning streak. At the same time, volume resumed its decline, falling by around 28,100 contracts. Gold prices have been hovering around the $1,840 area, while both open interest and volume have fallen, opening the door to a short-term correction, and prices may continue the consolidation pattern.