Silver prices (XAG/USD) have pulled back from a recent two-year high of $28.36 following the release of data by the United States Bureau of Labor Statistics (BLS), indicating persistent consumer price inflation. The robust inflation figures, coupled with strong payroll data for March, have tempered market expectations regarding the Federal Reserve’s (Fed) plans to initiate interest rate reductions starting from the June meeting.
According to the BLS report, the annual headline Consumer Price Index (CPI) surged to 3.5%, surpassing expectations of 3.4% and marking an increase from the previous reading of 3.2%. Meanwhile, annual core inflation, which excludes volatile food and energy prices, maintained a steady ascent, reaching 3.8%. Economists had anticipated a moderation in the most closely monitored inflation gauge to 3.7%.
Fed policymakers have consistently emphasized that a reduction in interest rates would not be appropriate until they are convinced that inflation will sustainably return to the 2% target. To achieve this target, monthly inflation would need to rise at a rate of 0.17%. However, March saw both headline and core CPI increasing by 0.4%, surpassing expectations of 0.3%.
Looking ahead, traders are anticipated to revise their expectations regarding the timing of potential interest rate reductions by the Fed, with a shift towards the third quarter of this year. The persistence of elevated inflation levels is likely to intensify uncertainty surrounding the projected three rate cuts for this year, as indicated by Fed policymakers in the latest dot plot.
The release of the hot CPI figures has triggered a notable surge in yields on interest-bearing assets, including US bonds, with 10-year US Treasury yields climbing to 4.48%. Concurrently, the US Dollar Index (DXY) has rallied to the critical resistance level of 105.00.
