Gold scaled a fresh all-time high on Thursday, its 16th record this year, as the U.S. Federal Reserve signalled two interest rate cuts this year as economic uncertainty rises. Spot gold (XAUUSD) hit a high of $3,057.21 in the wake of the decision, which saw the Federal Open Market Committee (FOMC) keep its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December. The SPDR Gold Shares ETF (GLD) closed yesterday at a record $281.11.
“Uncertainty around the economic outlook has increased,” the Fed said in its communique accompanying the decision, a new line that points to policymakers being as in the dark as the rest of us with regards U.S. trade policy and the impact of tariffs on consumer spending and corporate profits.
Growth forecasts were cut at the same time as inflation forecasts were raised. That was not enough for the FOMC to vary their outlook on policy, with two cuts still pencilled on the dot plot as the Fed lent on its need for more data. Despite sticking to two cuts this year, the projected path for rates seemed to take a slightly hawkish turn. In December only one policymaker saw no rate changes in 2025, compared with four now.
Nevertheless, bond yields fell, which lifted gold as non-yielding assets do better when rates are low. US 10yr and 30yr yields dropped to 4.257% and 4.568%, respectively, the lowest closing levels since March 10th.
Growth Outlook Slashed
Policymakers slashed 2025 GDP growth forecasts to 1.7% from 2.1%, 2026 to 1.8% from 2%, and 2027 to 1.8% from 1.9%, reflecting government spending cuts and tariffs, which will affect both corporate profits and consumer spending. At the same time, members revised up their core PCE expectations to 2.8% this year versus 2.5% in the December forecast. The Fed really held up a mirror to the recent consumer survey and economic data – surveys are bad, the hard data softening but still holding up for the time being. April 2nd sees “reciprocal tariffs” and then the market and the Fed may have a clearer understanding of what to expect.
In addition to leaving two cuts on the table, the Fed also announced further scaling back of quantitative tightening by which it slowly reduces the bonds it holds on its balance sheet. This is de facto loosening, but Powell described really as more of a technical move rather than a policy adjustment.
Powell’s comments in the press conference were aligned with those in his March 7th speech that “we do not need to be in a hurry, and are well positioned to wait for greater clarity.” In his press conference on Wednesday, Powell noted some “moderation in consumer spending” and that tariffs could put upward pressure on prices.
The bottom line is that Fed doesn’t really know what happens next. “If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer,” said Powell. “If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”
Uncertainty around tariffs and escalating tensions in the Middle East have helped push gold prices higher this year.
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