Powell to Make Case for Rate Hold

Fed Chair Jerome Powell is expected to explain the Fed's latest moves and provide insight on whether the market is on the right track with rate cut projections.

Inflation Risks Stem from Tariffs, and Now Oil

Fed Chair Jerome Powell is headed to Capitol Hill this week to give his semi-annual testimony before Congress. On Tuesday, he will appear before the House, and on Wednesday, he will make a similar presentation before the Senate. Coming this close on the heels of the and without any major new data having been released in the interim, Powell will likely reiterate what he said last Wednesday: the economy is solid, there is a risk for inflation to accelerate due to the tariffs, but the trade war has added more uncertainty and it's hard to predict where rates will go in the near term.

What could add another dimension to the presentation is if lawmakers ask about the potential for inflation from a different, more recent source: The tensions in the and natural gas over the last couple of weeks, which could filter through to the US economy in the form of higher inflation. Later this week, the Fed's preferred inflation measure, the core PCE price index for May, is expected to show a slight acceleration in consumer prices to 2.6% from 2.5% previously, moving away from the Fed's 2.0% target.

A Golden Opportunity?

The focus is now on when the Fed gets around to cutting rates, with US President Donald Trump keeping up the pressure to ease quickly in order to support the economy. After the last meeting, the FOMC released its projections for rates in the second half of this year, with . This aligns with market expectations for a rate cut in September, followed by another cut in December. Meanwhile, the July meeting offers an opportunity for the Fed to hint at a coming cut. If Powell doesn't provide anything definitive on an easing timeline, it will likely affirm the market's outlook.

Gold prices had been gaining this year as traders looked for refuge from geopolitics but have stalled since hitting an all-time high in the wake of Israel launching airstrikes against Iran. To gain traction, gold will need the support of lower interest rates, which typically make the haven more attractive to investors. But without a clear signal from Powell (or inflation data) as to when easing may start, gold might tread water through the summer unless the Middle East conflict escalates.

Gold Still Consolidates

The prices of gold have found support near $3300 per ounce, but still appear to be consolidating within the $3500-$3120 symmetrical range of a potential triangle pattern. Losing support may trigger further downside towards $3170 and possibly lower if the RSI shows bearishness, whereas holding support could see prices head towards 3441, as indicated by the ‘autotrend’ trendline.

Source: SpreadEx / Gold SPOT

Key Takeaways

The Fed Chair is set to testify before Congress this week, where he is expected to reiterate the Fed's stance that the economy remains solid but faces risks from trade tensions and rising inflation due to tariffs and perhaps the recent oil price spike. Powell will likely provide insight into the Fed's projections for potential rate cuts later this year, which currently align with market expectations of two 25-basis-point cuts in September and December. Powell's testimony could offer clues on the timeline for rate reductions, which would influence the trajectory of gold prices.