- Gold bids jump after Fed releases latest rate call and dot plot.
- Growth expectations in 2025 are getting hampered by lopsided US policy calls.
- Powell acknowledged that tariff impacts are proving difficult to forecast.
On Wednesday, Gold surged toward $3,050 during intraday trading as the Federal Reserve (Fed) made its latest interest rate decision, keeping rates unchanged at 4.5%. The Fed noted that growth projections for 2025 have been significantly hindered by the Trump administration's erratic policy of announcing trade tariffs on social media only to later retract them. As a result, the Federal Open Market Committee (FOMC) revised its end-2025 Gross Domestic Product (GDP) forecast to 1.7%, a sharp decline from the 2.1% estimate shared in December.
Additionally, the median dot plot suggests the end-2025 interest rate will remain at 3.9%, showing little change since the last policy meeting. The FOMC plans to slow down its balance sheet runoff starting in April. Rate markets still indicate a greater than 50% chance of a quarter-point rate cut in June, with most rate traders pricing in 65% odds of a quarter-point or higher rate cut on June 18.
Fed's Powell: Inflation remains somewhat elevated
Despite rising risks to the US economy via lagging growth metrics and growing concerns that the US' haphazard tariff policy could kick off both fresh inflation and an economic recession at the same time, Fed Chair Jerome Powell noted on Wednesday that the current economic outlook still remains overall healthy, and the Fed is in no rush to shift away from its expectations of at least two more rate cuts later in the year.
This policy outlook matches the aggregate score of Fed policymaker speeches, scored by FXStreet's internal Fed Sentiment Index, which shows Fed speakers have been vocal in pointing out the growing risks and concerns looming over the US economy, however the aggregate view remains pinned slightly to the dovish side, but close to neutral as the Fed awaits clearer data direction.
XAU/USD daily chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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