(Kitco News) - The gold market is seeing renewed momentum as the Federal Reserve cuts interest rates following its final monetary policy meeting, though it did not signal any aggressive easing through 2026.
Although interest rate expectations have been volatile over the past month, the Federal Reserve’s 25-basis-point cut to the federal funds rate—bringing it to a range between 3.50% and 3.75%—was in line with the latest market expectations.
Gold is experiencing choppy trading in its initial reaction to the rate cut. Spot gold last traded at $4,205 an ounce, roughly unchanged on the day.
The central bank provided little forward guidance, with the statement largely unchanged from the October meeting.
“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated,” the monetary policy statement said.
The Federal Reserve’s updated economic projections also offered little new direction, reflecting only modest changes from October’s outlook.
The Fed’s interest rate projections—known as the dot plots—remain unchanged, with policymakers expecting rates to fall to 3.4% next year, indicating potentially two rate cuts.
The central bank sees only one potential rate cut in 2027 and expects long-term interest rates to stabilize at 3.1%.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said investors should be cautious about an overreaction in global financial markets, as much of the Fed’s outlook is already priced in.
“Markets gave us the usual sugar rush on the back of the Fed decision, but the important thing to keep in mind is that the 25-basis-point rate cut was already priced in, so be aware of the sugar rush easing off. The real message is the deeply split vote and the 78% odds of no move in January — the Fed just slammed the brakes on the easing cycle,” he said.
According to some economists, beyond the headline rate cut, they are paying close attention to the vote split, which shows no clear consensus. Fed Governor Stephen Miran voted for a 50-basis-point cut, while Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid voted to keep rates unchanged.
The Federal Reserve’s neutral monetary policy comes as it expects to see a modest increase in economic activity next year. The central bank sees GDP increasing 2.3% next year, up from October’s estimate of 1.8%. The economy is expected to grow 2.0% in 2027, up from the initial estimate of 1.9%. The economy is expected to grow 1.9% in 2028, unchanged from October’s estimate.
The U.S. labor market is also not expected to see any significant surprises. The central bank sees the unemployment rate rising to 4.4% next year, unchanged from October’s estimates. The employment rate is expected to remain steady at 4.2% through 2027 and 2028.
On inflation, the Fed sees consumer prices remaining elevated next year, with core consumer prices rising 2.5%, down only slightly from October’s estimate of 2.6%. Inflation is expected to continue to moderate in 2027 to 2.1% and 2028 to 2.0%, unchanged from October’s estimates.
Headline inflation is expected to be significantly lower compared to this year. Inflation is expected to rise 2.4%, down from October’s estimate of 3.0%. Inflation is expected to rise to 2.1% in 2027 and 2.0% in 2028, unchanged from October’s forecast.
