Fed Delivers Expected Cut; Stronger Dollar Weighs on Gold

Fed Cuts Rates by 25 bps After Nine Months

The Federal Reserve on Wednesday delivered its first policy adjustment in nine months, lowering the benchmark interest rate by 25 basis points to a target range of 4.00 - 4.25%, in line with market expectations. Newly confirmed Governor Stephen Miran was the only dissenting voice, favoring a deeper 50 bps cut. The September 2025 dot plot signaled that most officials anticipate an additional 50 bps of easing over the two remaining meetings this year.

FOMC Economic Projections

Economic projections of FOMC suggests that they downgraded its labor market assessment, citing slower job gains and a slight uptick in unemployment. Inflation, meanwhile, remains elevated, with median headline and core projections for 2026 revised up by 0.2 ppt to 2.6%, reflecting the gradual pass through of tariffs into prices, stronger growth expectations, anticipated fiscal support, and a more accommodative monetary stance.

Powell’s Post-Meeting Remarks

At the post-meeting press conference, Chair Jerome Powell adopted a slightly more hawkish stance than markets expected, triggering a sharp drop in gold prices. He described the rate cut as a “risk management” move while emphasizing that future policy decisions would be taken on a “meeting by meeting situation". Powell also highlighted growing signs of labor market weakness, noting that labor demand has softened and the pace of job creation is now running below the break even rate needed to keep unemployment steady, adding that he can no longer describe the labor market as very solid. On tariffs, Powell said the full impact is yet to be seen, stressing that the Fed’s obligation is to ensure that “a one-time increase in the price level does not become an ongoing inflation problem.”

Gold’s Knee-Jerk Reaction

Gold initially saw a knee jerk rally after 11:30, surging to a high of $3,744 on COMEX as markets briefly priced in the possibility of a 50 bps cut. However, the gains quickly reversed after Powell’s remarks, with prices tumbling nearly $60 as markets sensed a hawkish tilt. On MCX, gold opened today with a gap-down at ₹1,09,250, while the Dollar Index spiked sharply post conference, adding further pressure to the metal.

Outlook for Gold Prices

Looking ahead, our longer term bullish view on gold remains intact, with medium-term targets of $4,000 on COMEX and ₹1,20,000 on MCX. In the short term, however, some correction is possible if the dollar strengthens or profit booking sets in, with key support seen in the ₹1,07,000 - ₹1,04,500 zone on MCX. We continue to favor a buy on dips strategy for traders and investors.