Following comments from Federal Reserve Chairwoman during testimony in front of congress, one of the last remaining elements necessary for raising rates managed to top expectations by a wide margin. Besides the employment component of the Fed’s mandate, the other important target relates to the 2.00% inflation target. With headline inflation coming in at 2.50%, the highest rate of gains since March of 2012, the Federal Reserve may be forced to consider higher rates at the approaching FOMC Meeting scheduled for March.
Adding to the likelihood of additional policy tightening is core inflation that has been above 2.00% for fifteen straight months along with stronger retail momentum. According to the CME Group’s FedWatch tool, the probability of March action has now risen to 31.00% from just 17.70% two days earlier. While the US dollar initially reacted positively, sending gold below $1220, the precious metal managed a late session recovery.