The gold market continues to struggle to find a balance when the US Federal Reserve (Fed) keeps interest rates unchanged but still signals a possible easing in the medium term.
As predicted, the Fed maintains interest rates in the range of 3.50%–3.75%. However, updated economic forecasts show that the central bank expects interest rates to fall to about 3.4% by the end of the year, implying at least a cut this year. This forecast level is unchanged compared to December, but is assessed as softer than market expectations, which are concerned that the Fed will lean towards a more "hawkish" stance due to persistent inflation.
In its policy statement, the Fed did not give many specific orientations but maintained a positive view of the economy. The agency said that current indicators show that economic activity is still growing steadily, while acknowledging that developments in the Middle East could create uncertainty for the US economic outlook. The Fed emphasized that it will monitor risks for both goals of controlling inflation and maintaining jobs.
However, the gold market has hardly reacted positively to this stance. Spot gold prices fell more than 2%, to around 4,713.15 USD/ounce.
The Fed's new forecasts show that the agency is quite optimistic about growth and believes that the impact of increased inflation will not last long. Specifically, the US economy is expected to grow 2.4% this year, slightly higher than the previous forecast of 2.3%. Growth next year is expected to reach 2.3% and reach 2.1% in 2028.
The labor market is also assessed as stable, with the unemployment rate expected to be at 4.4% this year, then slightly decrease to 4.3% next year and around 4.2% in 2028.
Regarding inflation, the Fed forecasts that the Personal Consumption Expenditure (PCE) index will increase by 2.7% this year, higher than the previous forecast of 2.4%. However, price pressure is expected to cool down in the following years, with the PCE falling to 2.2% next year and reaching the target of 2% in 2028. A similar trend is also recorded with core inflation.
Mr. Jamie Cox – Managing partner at Harris Financial Group said that the Fed is choosing to "look through" the shocks from conflict, instead of adjusting policy strongly. In the context of inflation coming from supply, the central bank is likely to maintain a state of waiting instead of rushing to change interest rates.
Meanwhile, Mr. Jeffrey Roach – Chief Economist at LPL Financial said that the Fed is in a state of "standstill" as the economy still contains many risks. He noted that weaker-than-expected growth by the end of 2025 shows that the economy has a less solid foundation than initially assessed. However, factors such as increased productivity thanks to artificial intelligence may become a driving force in the context of declining labor force and persistent service inflation.
Overall, although the Fed still leaves open the possibility of interest rate cuts, the prolonged high interest rate environment along with inflationary pressure and geopolitical instability continue to be factors hindering the recovery momentum of gold prices in the short term.
