(Kitco News) - The gold market remains off its highs and is struggling for direction as the Federal Reserve maintains its neutral monetary policy stance, even as it raises its inflation expectations and lowers its growth forecast.
As expected, the Federal Reserve left interest rates unchanged within a range of 4.25% to 4.50%. The U.S. central bank provided little guidance on its monetary policy. According to updated interest rate projections, also known as the dot plots, the Federal Reserve sees interest rates ending the year at 3.9%, unchanged from December. The central bank also expects rates to fall to 3.4% next year and 3.1% in 2027, maintaining its previous projections.
While the Federal Reserve is in no hurry to cut interest rates, it is taking a more nuanced stance regarding its balance sheet.
“Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion,” the central bank said in its monetary policy statement.
The gold market is not seeing any new momentum, even as prices continue to trade near record session highs above $3,000 an ounce. Spot gold last traded at $3,031.16, roughly unchanged on the day.
Stephen Brown, Deputy Chief North America Economist at Capital Economics, said that although the Federal Reserve is still pricing in two rate cuts this year, there is significantly more uncertainty in this easing cycle.
“Although the FOMC stuck to its median projection for two interest rate cuts this year, some officials now share our view that further loosening is unlikely. We continue to think that Fed officials are underestimating the extent to which tariffs are likely to push up inflation,” he said in a note.
Although gold is not finding much direction from the Federal Reserve’s monetary policy, some analysts have said it remains well-supported as the updated economic projections indicate growing stagflation risks.
Looking at economic activity, the central bank now expects GDP to grow 1.7% this year, down from its previous forecast of 2.1%. GDP is projected to stabilize at 1.8% for the next two years, revised downward from 2.0% and 1.9%, respectively.
The Federal Reserve also expects the U.S. labor market to remain relatively healthy, with the unemployment rate rising to 4.4% this year, up slightly from December’s forecast of 4.3%. The unemployment rate is projected to remain steady at 4.3% through 2027, unchanged from the previous estimate.
Regarding inflation, the Federal Reserve expects the core Personal Consumption Expenditures Index (PCE) to rise 2.8% this year, up sharply from December’s forecast of 2.5%. Core inflation is expected to rise to 2.2% in 2026 and 2.0% in 2027, unchanged from last year’s projections.
Headline inflation is also expected to be higher this year and next before cooling in 2026. The central bank projects inflation to rise 2.7% this year, up from the previous estimate of 2.5%. Inflation is expected to increase to 2.2% next year, up from the prior estimate of 2.1%. The 2027 inflation expectations remain unchanged at 2.0%.
Jeffrey Roach, Chief Economist for LPL Financial, said that its not surprising that the Federal Reserve has reiterated its relatively neutral stance as it remains “in the midst of policy fog as they await the impact from upcoming tariffs.”
However, the Fed’s updated projections could support gold prices as it weakens the U.S. dollar.
“The updated projections are more downbeat and will place downside pressure on the dollar in the near term,” said Roach.
