Market Update April 30 – Fed Continues to Struggle with Inflation

The cost of labor for U.S. companies accelerated in the first quarter of 2024 at the fastest pace in a year and a half, adding to the Federal Reserve's struggles to control inflation. The Employment Cost Index rose 1.2% in Q1, the government reported Tuesday. This was the largest increase since the third quarter of 2022 and exceeded the 1% forecast by economists recently polled by The Wall Street Journal.

Compensation costs have come down from a multi-decade high of 5.1% in 2022, but they remain far too high for the Fed’s comfort. Wages and benefits grew at a pace of 4.2% in the 12 months ending in March, unchanged from the fourth quarter.

Ideally, the Fed would like to see annual compensation increases slow to pre-pandemic levels of less than 3% per year to help keep inflation in check.

The US Dollar's strength continues, hovering at 106 on the US Dollar Index (DXY) and is exerting pressure on gold, silver, and other commodities. Gold has fallen from recent record highs and is now testing the $2,300/oz mark. Silver has also declined, down nearly 10% from its mid-April highs. The metals will need some relief in the form of a weaker US Dollar or renewed escalations in the Middle East, to recoup their recent losses.

The Fed meets this week and is expected to maintain a hawkish stance on interest rate cuts. Persistent inflation and a strong US labor market have thwarted earlier expectations of rate reductions. Markets had been hopeful that rates would be cut as soon as June, but this timeline has shifted to September after recent economic data suggested that inflation is persistent and the economy remains resilient.

Investors in precious metals can expect continued pullbacks, presenting buying opportunities, until new data emerges.

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Mark Yaxley, CEO of Strategic Wealth Preservation (SWP), began his journey in precious metals with Kitco Metals in 2006. Co-founding SWP in 2014, he now guides individual and commercial clients towards their investment goals. Renowned for his 'Inside the Vault' YouTube series, Mark has helped millions gain insights into gold and silver bullion ownership.