Breaking news: Fed says rate cut could come in Sept. Gold climbs!

Fed Signals Rate Cuts May Come Before Election

Gold traded higher after the Federal Reserve held interest rates steady at its meeting today. However, the central bank made an important pivot in how it talked about the economy, signaling to Wall Street that it is getting closer to an interest rate cut.

Gold is climbing in afternoon trading at $2,449.90, not far from its record high set earlier this month at $2,469.70.

At the Fed’s post-meeting press conference, Fed chair Jerome Powell confirmed that an interest rate cut “could be on the table” at its next meeting on September 18.

With the U.S. presidential election front and center for so many Americans, Powell addressed that head on and said he “absolutely” believed that Fed can stay out of politics with its monetary policy actions. Powell added that “Anything we do before, during or after the election will be based on the data,” as opposed to trying to help one political party or another.

In fact, Congress has deemed that the Federal Reserve is an independent central bank and must make its decisions without taking politics into consideration, though that hasn’t stopped political figures from making requests of the central bank around election time.

Progress has been made on inflation. 

The Fed used today’s meeting to prepare the financial markets that interest rate cuts are coming, as the inflation rate continues to retreat. In June, the consumer price index fell 0.1% to an annual rate of 3.0%. While it is still above the Fed’s 2% inflation target, there has been significant progress made from the sky-high 9.1% inflation reading from June 2022.

How fast could rates fall once the Fed gets going? 

The Fed’s benchmark interest rate stands today at a two-decade high of 5.25-5.50%, but lower rates may be in store by the end of the year.

The Fed’s most recent economic projections from June revealed that the central bank could lower rates about every other meeting once they begin cutting. That could tug the Fed’s benchmark interest rate down to 4.1% by the end of the 2025 and as low as 3.1% at the end of 2026.

Fed shifts focus back to its dual mandate

Digging into the Fed’s meeting statement today, the bankers said that employment and inflation goals “continue to move into” better balance.

Fed-speak translation 

This implies that the central bankers are ready to treat both sides of their dual mandate, inflation and employment more equally, as opposed to the sharp focus on inflation following the major jump in consumer prices during and after the pandemic.

More gold gains ahead

Key takeaways? Expectations are rising for interest rate cuts later this year and that’s positive for gold. Once the Fed starts cutting interest rates, research shows that the price of gold tends to rise on average for the next 21 months.

Is it time for you to consider increasing your allocation to gold? The next upside targets for gold lie at $2,500 and $2,600 and with the way the precious metal has been trading this year, it could achieve those levels in a couple of blinks of the eye.

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