(Kitco News) - The gold market is seeing renewed buying momentum, with prices pushing closer to $3,700 an ounce as the Federal Reserve lowered interest rates and signaled more cuts through year-end and into 2026.
As expected, the Federal Reserve cut interest rates to a range between 4.00% and 4.25%. At the same time, updated economic projections show the Fed funds rate moving lower than previous estimates, even as inflation pressures remain elevated.
The gold market managed to move into positive territory in its initial reaction to the U.S. central bank’s shift in focus toward the economy’s slowing labor market. Spot gold last traded at $3,695.80 an ounce, up 0.20% on the day.
“Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” the central bank said in its monetary policy statement. “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
Along with today’s rate cuts, the Federal Reserve’s updated fed funds rate projections—also known as the dot plot—show potentially one more cut this year and two cuts next year. The central bank’s average estimates point to the Fed funds rate ending the year at 3.6%.
“The updated dot plot pointed to a further 2x 25bp cuts being delivered this year, with another 50bp of easing being delivered next year, followed by a solitary 25bp cut in 2027, all considerably more dovish than expected, and suggesting a front-loading of cuts akin to what the OIS curve had recently been discounting,” said Michael Brown, Senior Market Analyst at Pepperstone.
Aside from the revisions to interest rate forecasts, the U.S. central bank is maintaining a fairly steady course.
The latest estimates show the central bank expects the U.S. economy to grow by 1.6% this year, up slightly from June’s estimate of 1.4%. Growth is projected at 1.8% next year, up from the previous estimate of 1.6%. GDP is expected to expand by 1.9% in 2027, up from the prior forecast of 1.8%. In its first outlook for 2028, the central bank projects growth of 1.8%.
Looking at the labor market, the Federal Reserve expects the unemployment rate to rise to 4.5% this year, unchanged from June’s estimates. The rate is expected to ease to 4.4% next year, down slightly from the previous forecast of 4.5%. By 2027, the Fed sees the unemployment rate falling to 4.3%, compared to the prior estimate of 4.4%. By 2028, the rate is expected to decline further to 4.2%.
Meanwhile, the U.S. central bank does not expect inflation to hit its 2% target until 2028. According to the latest projections, the Federal Reserve sees core inflation at 3.1% this year, unchanged from June. Inflation is expected to remain elevated at 2.6% next year, up from the prior estimate of 2.4%. Core consumer prices are projected to rise 2.1% in 2027, unchanged from the earlier forecast.
Headline inflation is expected to end this year at 3%, also unchanged from June’s estimate, and is expected to follow the same trajectory as core inflation.
