Speaking at the European Central Bank's annual conference in Sintra, Portugal, Powell made it clear that the Federal Reserve is committed bringing prices under control even if doing so risks an economic downturn. This means that the Fed will do its best with further rate hikes to bring inflation back to the Federal Reserve's target level of 2%.Powell also admitted that the Federal Reserve's new monetary policy could lead to an economic downturn resulting in a recession. However, he does not agree that this is a bigger risk. A bigger mistake would be failing to restore price stability.The current forecasts suggest that today's Personal Consumption Expenditures Price Index (PCE) report will show that inflation is still more than three times the Fed's inflation target of 2% in May. If such outlooks are real, this will increase the chances that the Federal Reserve will raise rates by 75 basis points at the FOMC meeting on July 26-27.The Fed chairman tempered fears of recession by saying that the economy is in good shape and will be able to cope with tighter credit conditions while avoiding a recession or even a significant rise in the unemployment rate. However, he also added that if high inflation persisted for a long time, it would not be possible to stop it softly.New data suggests that inflationary pressures will remain extremely high. Yesterday, the Bureau of Economic Analysis reported that year-on-year GDP declined by 1.6% in the first quarter of 2022, following a 6.9% increase in the fourth quarter of 2021. The fall was revised down by 0.1% from the second estimate published in May.According to Chairman Powell's statements and preliminary forecasts, inflation, as seen in tomorrow's PCE price index report, has led to an extraordinary strengthening of the dollar in anticipation of higher interest rates.
The dollar strengthened as market participants focused on higher interest rates rather than on current inflationary pressures.
In turn, the strength of the dollar put pressure on gold, which was down to $1,810.
