The closes in stocks, bonds, gold and the U.S. Dollar put a cap on a week that centered on mixed signals. Not only did these markets show a mixed reaction to Friday’s PCE inflation report, but the trade was also influenced by confusing messages from Fed Chairman Jerome Powell and several Fed policymakers. The price action and the Fed comments likely left investors scratching their heads at times and feeling none-the-smarter about central bank policy since the last Federal Reserve report nearly two weeks ago.

Mixed Messages Over Inflation Fears from the Key Asset Classes

Last week, U.S. stocks closed higher, Treasury bonds finished lower (yields up), gold settled higher and the U.S. Dollar Index closed lower.

That’s quite a mixed because conventional wisdom usually steers us to believe that rising yields are good for the dollar, a bad for stocks and gold. We’re not sure it means anything yet, because it could just be signaling position-squaring ahead of Friday’s Non-Farm Payrolls report and a long U.S. holiday weekend.

Gold investors seem to be particularly confused, not necessarily by the price action, but because they seem to think the market should be rallying because Friday’s PCE inflation report showed the biggest jump in almost 30 years. What they don’t get is that one, the number was not a surprise, and two, it’s based on last month’s data, which may already be moving lower.

Treasury bonds moved lower for the week, which means yields moved up. CNBC said the 10-year U.S. Treasury yield rose on Friday “after a jump in a key data indicator of inflation.”

But CNBC also wrote that “U.S. stocks rose on Friday with the S&P 500 building its rally to records, as investors bet that higher inflation will be temporary as the economy continues to recover from the pandemic.”

CNBC also said that “Gold edged higher on Friday after stagnant U.S. consumer spending tempered bets for early monetary policy tightening by the Federal Reserve, setting bullion on track for its first weekly gain in four.”

Fed Officials May Not Be on the Same Page

Fed comments also contributed to the mixed trading results. It also started on Tuesday when U.S. Treasury yields dipped slightly as investors digested Federal Reserve Chair Jerome Powell’s bullish comments on economic recovery in a testimony to Congress. The Fed Chair also said factors pushing prices higher should retreat over time and that he expects inflation to fall back toward the central bank’s longer-run goal.

Powell’s comments seemed to go against remarks by St. Louis Fed President James Bullard who said on June 18 that he was one of the FOMC members who thinks a rate hike in 2022 would be appropriate. His comments were followed by Dallas Fed President Robert Kaplan who said Monday he is more focused on reducing the pace of bond purchases – tapering – for now, and sees the rates question as one to be answered another day.