Market Highlights for the Week: Inflation, Gold, and the Fed

Key inflation data and speeches from several Federal Reserve policymakers will be closely monitored by investors following last week’s significant rate cut. PMI data will offer insights into the global economy’s strength, while gold prices remain near record highs. Here’s what to watch in the markets this week.

Inflation

The Federal Reserve’s preferred inflation gauge, due on Friday, will indicate whether price pressures have eased as the central bank starts to unwind its tightening monetary policy.

Economists estimate that the August Personal Consumption Expenditures (PCE) price index will rise by 2.5% year-over-year. The Federal Reserve’s latest economic projections estimate the annual rate of the price index will be 2.3% by the end of the year and 2.1% by 2025.

The week’s economic calendar also includes the final reading of second-quarter GDP, more reports on consumer confidence, durable goods orders, new and pending home sales, and weekly data on initial jobless claims. 

Fed Speeches

Upcoming speeches by Fed officials will likely provide insights into last week’s rate cut. Atlanta Fed President Raphael Bostic will speak first on Monday, followed by Chicago Fed President Austan Goolsbee. Fed Governor Michelle Bowman will deliver a speech on Tuesday and another on Thursday, and given that she has become the first governor to disagree with a Fed decision since 2005, she is likely to make her case in her remarks, as she warned against cutting rates too quickly. Fed Chairman Jerome Powell will speak Thursday at the 10th annual U.S. Treasury Market Conference. 

New York Fed President John Williams and Vice Chairman for Supervision Michael Barr will also speak at the same event. Investors will be watching for any clues on how the Fed is assessing progress in reducing its balance sheet.

Market Volatility 

The S&P 500 index posted its first two-month high in two months at the close the previous week following the Fed’s announcement of a sizable 50 basis point rate cut, marking the start of the first U.S. monetary easing cycle since 2020. 

The index has gained 0.8% in September, historically the weakest period for stocks, and is up 19% year-to-date. However, the market rally could face challenges if economic data fails to support the idea of a “soft landing,” where inflation moderates without harming growth. Additionally, the close presidential race between Donald Trump and Kamala Harris could add to market uncertainty, with polls showing a near tie.

PMI Data

PMI data, starting Monday, will offer the latest snapshot of the global economy. The Eurozone’s composite PMI has expanded for six months, and the UK’s for ten, strengthening the British pound. Markets seem convinced, for the time being, that the Fed’s half-point cut will help to avoid a recession in the United States and, consequently, a global recession.

However, some concerns remain. In Germany, the eurozone’s largest economy, the contraction in business activity deepened in August and confidence remains weak. Meanwhile, China’s economy continues to struggle, putting the world’s second largest economy at risk of missing its annual growth target of around 5%.

All-Time Highs in Gold

Gold bulls are driving bullion prices to new records, with a USD 3,000 per ounce milestone in sight, fueled by monetary easing from central banks and the approaching U.S. presidential election.

Spot gold touched an all-time high of USD 2,572.81 an ounce on Friday and is on course for its best annual performance since 2020, up more than 24%, thanks to safe-haven demand due to geopolitical and economic uncertainty and strong central bank buying.

Low rates typically benefit gold, which doesn’t generate interest income. Citi analysts noted last week that gold prices could hit $3,000 an ounce by mid-2025 and $2,600 by the end of 2024, driven by U.S. rate cuts, strong demand for exchange-traded funds, and ongoing physical demand.