May 2024 Wrap Up

What were the key moments in the market this month?

Inflation Jitters: Fed pumps the brake

The Federal Reserve officials expressed increasing worry about persistent inflation. They lacked the confidence to reduce interest rates, as shown in the April 30 – May 1 FOMC meeting minutes.

The meeting followed a series of inflation reports early in 2024, with price increases well above the Fed’s 2% target. The minutes revealed that some policymakers were ready to tighten monetary policy further if inflation risks grew. However, key officials like Chair Jerome Powell and Governor Christopher Waller have since doubted the likelihood of future rate hikes. The FOMC unanimously decided to keep the benchmark short-term borrowing rate between 5.25% and 5.5%, a 23-year high maintained since July 2023.

IMF’s Advice: BoE should trim rates with care

The International Monetary Fund (IMF) has advised the Bank of England to reduce interest rates two or three times this year, targeting a decrease from the current 5.25% to between 4.75% and 4.5% by the end of the year. 

The IMF cautioned that delays in implementing these cuts could hinder economic recovery and result in prolonged low inflation. However, they also highlighted the risk of premature rate cuts before inflation is fully controlled. To enhance transparency, the IMF recommended the Bank hold more press conferences to explain its decisions, following insights from Dr Ben Bernanke’s independent review. 

RBA mulls rate hike but holds steady

The Reserve Bank of Australia’s (RBA) May meeting minutes showed that the bank considered raising interest rates due to persistent inflation concerns. Although the RBA kept the cash rate at 4.35% in April and took a less aggressive stance, policymakers worried that inflation might not fall as quickly as hoped. 

High consumer spending and a tight labour market were contributing to inflation. Despite these concerns, the RBA left rates unchanged, believing there was still a path to their 2% to 3% inflation target by mid-2025. However, the future of rate decisions remains uncertain due to the unpredictable economic outlook.

Gold’s mojo takes a hit as rate cut talks fade

As the dollar slipped on May 24, gold prices surged, but anticipation of U.S. central bank interest rate cuts dwindled, setting the stage for their worst week in five and a half months. Spot gold rose by 0.2% to $2,332.77 per ounce, benefitting from a 0.4% drop in the U.S. dollar index. However, U.S. gold futures settled slightly lower at $2,334.50. Gold hit a record high earlier in the week but lost over $100 and is heading for a 3% weekly decline, its largest since December.

According to Michael Widmer, Bank of America’s head of Metals Research, uncertainty about potential Fed rate cuts has kept Western investors cautious, but once cuts happen, interest in gold is expected to rise again. 

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