The economic data could impact Fed policy for several months and, consequently, gold prices despite the long-term spin on central bank buying and safe-haven demand.
Fed’s Focus Shifts Back to Inflation
The first of the two-way risks fell on Wednesday with the release of the jobs report. For months, the Fed had hinted that the weakening U.S. employment outlook was their primary concern and that inflation would eventually come down. However, that narrative flipped at the January 27-28 Fed meeting when Chairman Jerome Powell hinted that the central bank’s focus had now shifted back to sticky inflation. That brings Friday’s U.S. Consumer Price Index (CPI) to the forefront.
Yesterday’s reaction by the dollar and gold may be considered meek compared to what those markets may do if the CPI data follows the NFP data and comes out hotter than expected.
Hot CPI Could Push Rate Cuts to September
Right now, data points toward a June rate cut, but if the consumer inflation data comes out above the forecasts, then traders can push the first cut of 2026 into September, and this will probably drive the dollar sharply higher and drive gold back to recent lows.
We said that Fed policy was just one part of the long-term bull market, so a short-term pullback into a support zone could actually be a good thing for the long-term bulls who are getting their guidance from central bank buying.
The uncertainty surrounding the timing and the number of Fed rate cuts this year could linger for months before the jobs market lines up with inflation expectations. In the meantime, gold traders have to be prepared for a choppy, two-sided trade over the near-term.