US inflation expectations extend pullback from multi-day high

While easing challenges for US Fed Chair Jerome Powell’s hawkish bias, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, extended pullback from a 10-week high towards 2.57% by the end of Friday’s North American trading session.

In doing so, the greenback gauge extended Thursday’s U-turn from a multi-day high after witnessing mixed US data. That said, the US Core Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s preferred inflation gauge, edged lower to 4.6% in July from 4.8% prior and 4.7% market forecasts. Further, the University of Michigan Consumers Confidence Index was revised upwards in August, with the final print arriving at 58.2, versus the preliminary reading of 55.1 and 55.2 expected.

It should be noted that Fed Chairman Jerome Powell said, “Restoring price stability will take some time, require using central bank's tools 'forcefully',” during his much-awaited Jackson Hole speech.

Given the recently easing inflation expectations, the market’s risk appetite may improve should the Fed policymakers consider the signal strong enough to step back from the rate hike trajectory. However, that road is long and bumpy, which in turn requires multiple prints of the US inflation expectations to push back the Fed hawks.

Also read: Gold Weekly Forecast: Bears look to retain control as focus shifts to US jobs report