(Kitco News) - The gold market is struggling to hold the line at $2,350 an ounce as the Federal Reserve continues to pare down its interest rate cut expectations.
As expected, the Federal Reserve left interest rates unchanged within a range of 5.25% to 5.50%.
The updated economic projections show the central bank sees one rate cut this year, down from three estimated in March. The Federal Reserve's interest rate estimate, also known as the dot plot, shows the Fed funds rate ending the year above 5.00%.
While holding positive gains, the gold market has fallen slightly below $2,350 an ounce, which has proven to be a critical resistance point. August gold futures last traded at $2,345.80 an ounce, up 0.79% on the day.
According to some economists, the U.S. central bank continues to keep its options open as inflation remains stubbornly elevated. However, the central bank did tweet its comment on inflation.
“Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective,” the central bank said in its monetary policy statement.
Looking at the economic projections, the central bank kept its GDP forecast unchanged at 2.1% growth for this year and 2.0% growth in 2025 and 2026.
The Federal Reserve also expects the U.S. labor market to remain healthy, with the unemployment rate rising this year to 4.0%, unchanged from the March forecast. It is expected to rise to 4.2% next year and 4.1% in 2026, up from 4.1% and 4.0%, respectively, in the previous estimate.
Looking at inflation, the central bank still doesn’t expect core PCE inflation to hit the 2% target until 2026. Core inflation is expected to rise to 2.8% this year, up from 2.6% projected in March. Inflation is expected to rise to 2.3% next year, up from the prior forecast of 2.2%.
Headline inflation is also expected to be higher this year and next before cooling in 2026. The central bank sees inflation rising to 2.6% this year, up from the previous estimate of 2.4%. Inflation is expected to rise to 2.3% next year, up from 2.2% projected in March.
Although the Fed has signaled only one rate cut this year, some economists note that it is a close call as eight out of 19 central banks still see two rate cuts. Ashworth, Chief North America Economist at Capital Economics, said that everything depends on the health of the economy.
“Overall, there’s nothing here that rules out a September rate cut. It all depends on the incoming data. If employment growth edges down again and the May price data prove to be the start of a renewed disinflationary trend, as we expect, then two rate cuts this year are still the most likely outcome,” he said.
