Inflation in the United States continues to show signs of moderation. The latest data shows CPI inflation hovering around 3% annually, while PCE inflation the Federal Reserve's favorite indicator is hovering around 2.1–2.6%. This decline in inflation signals that price pressures in the US are beginning to ease after a period of high price increases post-pandemic. This directly impacts market expectations regarding the Fed's interest rate policy, as stable inflation opens the door to further monetary policy easing in the near future. However, the Fed remains cautious as core inflation remains slightly above its 2% target.
Impact on the Global Economy
More manageable US inflation provides a breath of fresh air for the global economy. When US inflation declines, the pressure of high interest rates tends to diminish. If the Fed lowers interest rates, developing countries could potentially experience greater capital inflows as investors seek higher yields outside the US. Furthermore, global borrowing costs could generally decline, aiding the global economic recovery. Countries with dollar-denominated debt can also find some relief if the dollar weakens along with falling inflation.
Impact on Gold Prices.
Gold typically moves inversely to the dollar and US interest rates. If US inflation falls and the Fed opens the door to a rate cut, gold often benefits. Lower interest rates mean the cost of holding non-interest-bearing gold becomes cheaper. Furthermore, if the dollar weakens, gold becomes more attractive to global buyers. In short: falling US inflation expectations of lower interest rates potential for gold to rise.
Impact on Oil Prices
Oil has a slightly different response. Lower US inflation can support global economic growth because borrowing costs decrease. If economic activity increases, demand for oil also increases. Conversely, a weaker dollar makes oil priced in dollars cheaper for other countries, which typically boosts global demand. So overall, declining US inflation tends to be a positive boost for oil prices, as long as global demand conditions remain solid.
Source: Newsmaker.id
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