(Kitco News) - The gold market continues to struggle to find its footing as the Federal Reserve leaves interest rates unchanged but signals that it still sees a path lower through 2026 following Wednesday’s monetary policy meeting.
As expected, the Federal Reserve left interest rates unchanged within a range of 3.50% to 3.75%. However, the updated economic projections show the central bank sees rates falling to 3.4% by the end of the year, suggesting at least one rate cut this year.
The interest rate projections were unchanged from December’s forecast.
According to some economists, the updated projections are slightly more dovish than expected; markets were looking for a more hawkish tilt due to persistent inflation.
The Federal Reserve provided little forward guidance but struck an optimistic tone on the health of the economy.
“Available indicators suggest that economic activity has been expanding at a solid pace,” the central bank said in its monetary policy statement. “The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.”
The gold market is not seeing much reaction to the Federal Reserve’s more nuanced stance. Spot gold last traded at $4,887.90 an ounce, down more than 2% on the day.
Overall, the central bank’s updated economic projections showed the committee was optimistic on growth and they saw limited impact on higher inflation.
“The Fed is choosing to look through the fog of conflict, for now. A dual mandate Federal Reserve is not going to rock the interest rate boat during a supply shock,” said Jamie Cox, Managing Partner for Harris Financial Group, in a note.
The latest estimates show the central bank expects the U.S. economy to grow by 2.4% this year, up slightly from December’s estimate of 2.3%. Growth is projected to grow 2.3% next year, up from the previous estimate of 2.3%. GDP is expected to expand by 2.1% in 2028, up from the prior forecast of 1.0%.
The Federal Reserve also expects to see a relatively stable labor market. The unemployment rate is projected to rise to 4.4% this year, unchanged from December’s numbers. The rate is expected to ease to 4.3% next year, up slightlyl slightly from the previous forecast of 4.2%. By 2028, the Fed sees the unemployment rate rising 4.2%, unchanged from December.
Although the central bank sees inflation pushing higher this year. It is not expected to be sustainable. The committee sees US PCE rising 2.7% this year, up sharply from December’s forecast of 2.4%. However, price pressures are expected to ease next year with headline PCE rising 2.2%, up from December’s estimate of 2.1%. The central bank sees broad inflation hitting its 2% target by 2028.
The Federal Reserve sees a similar path for core inflation, which strips out volatile food and energy prices. Core inflation is projected to rise 2.7% this year, up from December’s estimate of 2.5%. Meanwhile, core PCE is expected to rise 2.2% next year, up from 2.1% in December. Core inflation is expected to hit the central bank’s 2% target in 2028.
Jeffrey Roach, Chief Economist for LPL Financial, said that the Federal Reserve appears to be in a holding pattern as it continues to navigate uncertain economic waters.
“The upward revision to 2026 growth is misleading if not presented in context. The weaker growth in Q4 2025 showed the economy is on feeble footing than originally estimated. The likely productivity boost from AI could not come at a better time, if it can be the antidote to slower population growth, shrinking labor force, and persistent services inflation,” Roach said.
