By: Rhona O'Connell, Head of Market Analysis
Rhona O'Connell, Head of Market Analysis, EMEA & Asia
Tel: +44 203 580 6115 / mobile +44 7384 833897
Uncertainty remains the watchword and is the primary driver behind the flight to safety with gold almost taking on a life of its own and Ukraine / Gaza coming again to the fore, quite apart from tariffs. Silver underperforming due to its industrial nature (over 60% of demand is industrial) and this is also coloured by Trump’s anti-green stance, given that solar is one of the key elements in silver’s otherwise bright longer-term prospects. Platinum and palladium also struggling in the face of economic issues while the near-inevitable pushback on net zero / EV targets is gaining momentum with increasing numbers of auto companies saying the target can’t be met. Analyst opinions across the industry have been espousing this view for many months – now it’s actually happening.
Fed: lower growth, higher inflation
The Fed’s median fed funds target rate projection was unchanged at two cuts this year, but there is a slightly more hawkish tone with the number of “no cuts” rising from one member to four. Also “3 cuts +” down from 5 to 2. Growth projections reduced, with GDP median for 2025 now at 1.7% and “a bit below 2% over the next two years”. The median in December 2024 was 2.1%.
Labour market broadly in balance with wages rising faster than inflation. Unemployment currently at 4.1%; projected for end-year at 4.3%.
Median projection for core PCE inflation is 2.7% this year and 2.2% next year. In December this was 2.5% and 2.1% respectively.
In no hurry to adjust the policy stance wrt interest rates and awaiting further clarity.
As of April, however, the Fed will reduce its rate of Quantitative Tightening, which means slowing the reduction in the balance sheet and which is the Velvet Glove approach to letting market rates ease.
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