(Kitco News) - Gold prices fell to session lows Wednesday after Federal Reserve Chair Jerome Powell reaffirmed that the central bank is in no rush to cut rates, dampening expectations for a September easing.
As anticipated, the Federal Reserve voted to keep interest rates unchanged, but the decision to hold rates steady was not unanimous. Two members of the Federal Open Market Committee, Michelle Bowman and Christopher Waller, dissented in favor of a 25-basis-point rate cut.
In its monetary policy statement, the U.S. central bank said that economic activity moderated in the first half of the year. However, Powell noted that despite this slowdown, the labor market, consumer activity, and the broader economy remain in relatively good shape.
Although gold initially held critical support at $3,300 an ounce following the announcement, Powell's lack of forward guidance triggered a wave of selling pressure. Spot gold was last trading at $3,271.90 an ounce, down 1.6% on the day.
Powell emphasized that significant economic data still needs to be assessed before the September policy meeting.
“We have made no decisions about September,” he said. “We will be taking that information into consideration, along with all the other data we receive, as we make our decision at the September meeting.”
While Powell has avoided offering clear guidance for the second half of the year, some analysts believe he has left subtle cues for investors.
“Despite the Fed statement giving little new information to investors, Chairman Powell dropped some hints in his press conference that a rate cut was more likely at the next meeting in September,” said Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management. “He noted that most measures of longer-term expectations remain consistent with their 2% inflation goal and suggested that the inflation impact from tariffs would likely be ‘short-lived,’ reflecting a one-time price level adjustment.”
Jeffrey Roach, Chief Economist for LPL Financial, also expects the Federal Reserve to begin cutting rates after the summer.
“The rate-setting committee has set the stage to take action at the next meeting. If economic conditions weaken, the committee will likely cut rates by a quarter point in September,” he said.
However, markets remain skeptical. Rate cut expectations declined during Powell’s press conference. According to the CME FedWatch Tool, markets now see a 55.8% chance of the Fed holding interest rates steady in September, compared to a 60% probability of a rate cut before the press conference.
The Federal Reserve has been cautious about easing rates this year, amid concerns that President Donald Trump’s trade policies could drive inflation higher.
Those fears have recently abated after the U.S. government announced new trade agreements with Japan and the European Union, which include a 15% increase in import fees. Nevertheless, Powell cautioned that the economy is still facing considerable uncertainty.
“There are many, many uncertainties left to resolve,” he said.
Powell also pointed out that consumers are already beginning to feel the effects of higher tariffs.
“We expect to see more of that. And we know from surveys that companies intend to pass these costs on to consumers. But the truth is, in many cases, they may not be able to,” he said.
Despite the rising inflationary pressures, Powell concluded that, based on current data, U.S. consumers remain in good financial health.
