Economists warn that many investors are watching inflation so closely that they’re forgetting about deflation. Deflation, in which prices retreat, is viewed as a negative sign for the economy. While Jerome Powell continues to insist that inflation is “transitory,” he has not yet hinted that deflation could be on the horizon.
Fox Business/Jonathan Garber
Forget inflation – deflation could rear its ugly head soon
Record price gains across large swaths of the economy have left many investors bracing for a period of sustained inflation, causing them to overlook the growing threat of deflation, according to some economists.
Deflation, in which prices retreat, is viewed as a negative sign for the U.S. economy.
While Federal Reserve Chairman Jerome Powell has insisted that the recent surge in inflation is “transitory,” pointing to the more than 50% decline in the cost of lumber as evidence that prices will cool as supply chain issues caused by COVID-19 are resolved, he has not yet hinted that deflation could be emerging.
The Fed in August tweaked its policy, saying it would allow inflation to run “moderately” above 2% “for some time” in order to help the central bank meet its goal of full employment.
Last month, core personal consumption expenditures rose 3.4% annually, which was above the central bank’s 2% target and the most since April 1992. Prices were up 0.5% from the prior month.
The annual data has a “base effects” skew due to the price decline that occurred at the onset of the COVID-19 pandemic.
But the Federal Reserve’s latest Dot Plot, released June 16, showed some members are already uneasy with the price gains.
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Kitco News/Neils Christensen
Gold prices holding gains following rise in U.S. weekly jobless claims
The gold market is holding on to solid gains but is not seeing much reaction to data that shows more American workers applied for first-time unemployment benefits than expected, according to Kitco News.
Thursday the U.S. Labor Department said that weekly jobless claims increased by 2,000 to 373,000, up from the previous week’s revised estimate of 371,000 claims.
The latest labor market data worse than expected as consensus forecasts looking for claims to fall to 345,000.
The latest employment data is not having much impact on the gold market as the price gold above critical support at $1,800 an ounce. August gold futures last traded at $1,817.80 an ounce, down 0.87% on the day.
The four-week moving average for new claims – often viewed as a more reliable measure of the labor market since it flattens week-to-week volatility – fell to 394,500 a drop of 250 claims from the previous week’s revised average.
“This is the lowest level for this average since March 14, 2020, when it was 225,500,” the report said.
Continuing jobless claims, which represent the number of people already receiving benefits, were at 3.339 million during the week ending June 26, down by 145,000 from the previous week’s revised level.
CNN Business/Ali Wayne
The best way for the US and other democracies to deal with China
While China’s global influence has grown substantially over the past two decades, its relationships with most major powers have been deteriorating, particularly since the onset of the Covid-19 pandemic.
The United Kingdom announced last year that it was ordering all Huawei infrastructure to be stripped from the country’s 5G networks by 2027. The European Parliament voted in May to halt the ratification of a major investment agreement between China and the European Union. And a number of developments have revitalized the Quadrilateral Security Dialogue (“the Quad”) — an informal grouping comprising the United States, Australia, India and Japan — including deadly border clashes between China and India last year and Beijing’s imposition of tariffs on Australian barley exports. The four countries are not only intensifying their military and diplomatic ties with one another, but also thinking harder about how to develop emerging technologies collectively and provision vaccines to Southeast Asia.
In addition, the communiqué issued after June’s G7 summit demonstrates the extent to which advanced industrial democracies are coalescing around concerns over China, calling for an investigation into the origins of the coronavirus, “including…in China”; pledging to “challeng[e] non-market policies and practices”; urging China to “respect human rights and fundamental freedoms,” especially in Xinjiang and Hong Kong; noting “the importance of peace and stability across the Taiwan Strait”; and expressing opposition to “any unilateral attempts to change the status quo and increase tensions” in the East and South China Seas.
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