The U.S. Department of Labor released its weekly jobless claims report at 8:30 AM EST, revealing that jobless claims rose to a two-month high. Jobless claims rose by 9,000, resulting in a total of 224,000 individuals that applied for unemployment benefits, while continuing claims increased by 70,000 to 1.898 million.
This is a strong indication that the labor market, which had been extremely robust, is gradually softening. The report also revealed that labor market momentum is gradually declining, which would certainly reduce inflation based on wages.
A softening labor market is critically important data suggesting that the Fed is on the right track and that its restrictive monetary policy is yielding the desired results of contracting the economy and thereby lowering inflation.
Gold prices had been under pressure before the release of today’s report, trading to an intraday low of $2,046 just a few hours before the report was released. Once the report was published, gold began to trade off of the lows and move significantly higher. Over the next four hours gold recovered from the lows of $2,049, and by 11:30 AM EST hit today’s high of $2,083.30.
Yesterday, the Federal Reserve concluded its first FOMC meeting of the year. It was largely factored in that the Federal Reserve would leave their benchmark Fed funds rates at the current levels. Market participants were intently focused on any information that could be gleaned from the written statement or comments during Chairman Powell’s press conference, hoping to find insights as to when the Fed would implement its first rate cut.
Chairman Powell emphatically dismissed the idea of a rate cut in March saying, “Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that. But that’s to be seen.”
As of 6:07 PM EST, gold futures basis the most active April contract is trading higher by $1.20 and fixed at $2,072.20, which is above the settlement price in New York and Globex. April gold gained a little over $3.00 this morning.
Today’s jobless claims support the position that the Fed is having a strong impact on inflation and putting it on a solid trajectory to its 2% target. Currently, market participants are factoring in the high probability of rate cuts coming in either the May or June FOMC meeting.
Although there are 47 days until the Federal Reserve convenes an open market committee meeting again, there is currently only a 39% probability that the Fed will announce a 0.25% interest rate after the March FOMC meeting. The CME’s FedWatch indicates only a 27.7% probability that the Fed will not cut rates by May. According to the FedWatch tool, there is a 0% probability that by June the Fed will not have cut rates.
The odds change tremendously in June, when there is a 38.8% probability that Fed funds rates will be between 4.75% and 5%, a 36.8% probability that Fed funds rates will be between 4.5% and 4.75%, and lastly, an 11.1% probability that the Fed will have cut rates to between 4.5% and 4.25%.
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Wishing you as always good trading,
Gary S. Wagner
