Gold prices surge as Fed cuts interest rates

Although interest rate expectations have fluctuated strongly in the past month, the decision to cut 25 basis points - bringing the federal funds rate to a range of 3.50% to 3.75% is still in line with the latest forecast of the market.

Gold prices have reacted to the decision to cut interest rates, increasing to 4,242.6 USD/ounce (recorded at 7:30 a.m. on December 11, Vietnam time).

The Fed did not give much directional signals in its post-meeting statement, with the content almost unchanged from the October meeting.

"The summary of existing indicators shows that economic activity continues to expand at a moderate pace. New jobs have fallen this year and the unemployment rate has risen slightly through September. Recent indicators also reflect this trend. Inflation has increased again since the beginning of the year and is still relatively high," the Fed said in its monetary policy announcement.

The Fed's updated economic forecasts also do not provide much new direction, only reflecting modest adjustments compared to the October outlook.

Interest rate forecast ( dot-plot chart) remains unchanged, with expectations of interest rates falling to 3.4% next year, equivalent to about two cuts. The Fed only sees the possibility of a one-time cut in 2027 and believes that long-term interest rates will stabilize around 3.1%.

Naeem Aslam - Investment Director of Zaye Capital Markets, said that investors should be cautious about the risk of the market reacting excessively, because most of the Fed's prospects have been reflected in prices.

The market has a familiar short-term and cooling momentum after the Feds decision, but its important to remember that the 25 basis point cut was priced in advance, so dont expect the increase to last.

The real message is deep internal division and the possibility of a 78% chance of the Fed not taking action in January - the Fed has just broken the easing cycle strongly" - he said.

According to some economists, the most notable factor is not the interest rate cut but the division in the vote that showed no clear consensus.

Fed Governor Stephen Miran voted in favor of a 50 basis point cut, while Chicago Fed President Austan Goolsbee and Kansas City Chairman Jeffrey Schmid wanted to keep interest rates unchanged.

The Fed's neutral stance comes as the central bank expects economic growth to improve slightly next year. The Fed expects GDP to grow 2.3% next year, up from the 1.8% forecast for October. The economy is forecast to grow by 2.0% in 2027 (compared to 1.9% previously) and 1.9% in 2028, remaining unchanged from the old forecast.

The US labor market is expected to not have many surprises. The Fed forecasts an unemployment rate to increase to 4.4% next year, unchanged from the October estimate, and to remain around 4.2% in 2027 and 2028.

Regarding inflation, the Fed expects consumer prices to remain high next year, with core inflation rising 2.5%, only decreasing slightly compared to an estimate of 2.6% in October. Inflation is forecast to decrease to 2.1% in 2027 and 2% in 2028, unchanged from the previous forecast.

Overall inflation is expected to fall sharply compared to this year. The Fed forecasts a 2.4% increase next year, much lower than the estimate of 3.0% in October. Overall inflation is expected to reach 2.1% in 2027 and 2.0% in 2028, remaining unchanged in the Fed's forecast.