FX.co ★ Will the Fed continue its tightening course given the current inflation data?

Market participants continue to react to the bullish market sentiment created by the CPI report, which was released on Thursday last week. Inflation was 6.5% year-over-year, marking the sixth consecutive month that inflation has declined from a peak of 9.1% in June.

According to the U.S. Bureau of Labor Statistics, after a 0.1% increase in November, consumer price index for all urban consumers (CPI-U) fell by 0.1% in December on a seasonally adjusted basis. And the all items index, before seasonal adjustment, increased by 6.5% for the year.

Core CPI inflation (excluding food and energy costs) rose 5.7% YoY, up 0.3% from the previous month. Although inflationary pressures have eased, the core consumer price index is still about three times the Federal Reserve's target of 2%.

At the same time, optimism forced investors to actively buy U.S. stocks, gold, and silver. However, they did not base market sentiment on recent Fed statements. The caveat is that the Federal Reserve has repeatedly reaffirmed its unwavering determination to keep interest rates high throughout 2023.

Many analysts believe that the Fed is bluffing because current rates are not sustainable throughout the year. Others feel that their vows to be transparent simply no longer exists.

U.S. equities, gold, and silver have benefited from this sentiment, leading to a strong rally in gold and silver, as well as moderate gains in major stock indices.

Dow added 0.33%:

S&P 500 added 0.40%:

and the NASDAQ Composite Index added 0.70%:

Gold up $24.20:

Silver up $0.41:

If the Fed continues on its course of tightening, it could lead to one of the biggest Fed blunders in recent history. The Fed's days of data dependency only seem to matter when the data supports their assumptions.