The Brains Trust - 2023, page-67

The biggest reason December’s inflation is expected to be lower is falling gasoline prices. According to the EIA, the average retail price of gasoline in the United States dropped last month to $3.210 per gallon, compared with the December 2021 average of $3.307 per gallon.

December was the only month in 2022 that saw an annual decrease in retail gasoline prices.

The Federal Reserve will use December CPI to help guide its next interest rate decision. Prompted by declining CPI data, the Fed increased interest rates by 0.5% last month. That was after four 0.75% increases to overnight rates in a row.

If the Fed decides inflation has fallen enough to justify only a 0.25% increase, we should expect the U.S. dollar to continue to drop in value — and that would cause an inverse movement in gold and silver prices.

If, on the other hand, the Fed maintains a 0.5% rate increase, it’s likely we could see a temporary rebound in the greenback — and that would cause weakness for gold and silver.

According to CME Group, the odds of a 0.25% increase from the Fed are currently over 78%.

Nevertheless, I personally believe the Fed is going to raise rates again by 0.5% and that we’ll see the dollar stabilize and the price of precious metals cool off a bit. That’s because even though CPI declining to 6.5% would represent a significant drop in inflation, it’s still more than three times higher than the Fed’s long-term 2% inflation goal.
I think CPI headline inflation is going to need to be under 5% before the Fed cuts rate hikes to 0.25%.