Gold and Silver Drop After Fed Confirms No Rate Cut

 

Gold and Silver Drop After Fed Confirms No Rate Cut

(Bullion News Network) – Gold pulled back on Wednesday, erasing all of Tuesday’s gains and sliding below the $3,300/ozt support line. Silver slid even further, dropping by over $1 per troy ounce compared to Tuesday’s closing price. The price action favored gold, driving the gold-silver ratio over one point higher to settle at around 88.20:1. Markets on Wednesday were primarily driven by another decision by the Federal Reserve. The FOMC voted to leave interest rates unchanged at 4.25-4.50% during a split decision that saw two governors dissent for the first time in decades. Prices slid further during Federal Reserve Chair Jerome Powell’s post-meeting press conference as the economist remained ambivalent about the possibility of a rate cut when the committee meets again in September. 

The Fed’s decision fell in line with market expectations, and the decision initially seemed to bode well for a September cut. The FOMC removed the phrase “uncertainty has diminished,” which appeared in its June meeting statement, from the July report. Powell clarified in the press conference that the removal means uncertainty remained unchanged from June’s levels – not that uncertainty had increased compared to the FOMC’s last meeting. Powell’s tone was cautious, and the Federal Reserve seems poised to continue its “wait and see” approach heading into that September meeting. 

An unsurprising focal point of the FOMC decision was the potential inflationary impact of U.S. President Donald Trump’s sweeping slate of tariffs. Powell clarified to reporters after the decision’s release that inflation due to tariffs may still be coming, and that the nature and persistence of these consumer price increases may not be clear for some time:

Changes to government policies continue to evolve, and their effects on the economy remain uncertain. Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen. A reasonable base case is that the effects on inflation could be short-lived, reflecting a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed. 

Speaking to reporters after the decision, Powell also addressed the ongoing GOP investigation into the Federal Reserve’s latest HQ renovations, which Trump and other high-ranking Republicans in Congress have criticized as being too costly. “It’s not my place to say,” Powell said when asked if Trump’s focus on the cost of the renovations stems from the politician’s repeated calls for the FOMC to cut interest rates, before explaining that it is uncommon for a sitting president to visit the Fed HQ to personally vet its renovation efforts. 

The decision was not without at least a bit of controversy. Two Federal Reserve board members, Michelle Bowman and Christopher Waller, dissented and voted to lower interest rates. This is the first time two Fed board members dissented on a decision in 32 years. When asked if the dissenting board members made persuasive arguments in favor of easing monetary policy, Powell took a soft approach:

This was quite a good meeting all around the table […] People thought carefully [about the data] and put their positions out there […] The majority of the committee was of the view that inflation is a bit above target, maximum employment is at target. That calls for modestly restrictive policy in my way of thinking.

Wall Street fell after the news broke, with the S&P and Dow closing sharply lower after Powell signaled that rate cuts may not be on the horizon. Nasdaq closed mixed on the news. Precious metals, which have historically tended to thrive in environments characterized by interest rate cuts, continued to fall throughout the day. Silver took the harder hit, losing over $1 per troy ounce Wednesday, less than a week after setting a 14-year high above $39/ozt. 

Markets do have a bit of a silver lining heading into August. CME FedWatch projects a 41.2% probability that the Fed will opt to cut interest rates at its next meeting in September. With a fresh inflation reading scheduled for release on Thursday, gold and silver markets could see a bit of action, especially if the data shows an increase in consumer prices. Fluctuations in Fed rate cut futures have historically boded well for gold, a trend that characterized the market during the precious metal’s bull run in 2024. Although FOMC betting has been sidelined so far in 2025, general uncertainty surrounding Trump’s historic slate of tariffs has served as a buoy for safe haven assets.

Adding to the pessimistic tone for gold and silver markets on Wednesday was the positive tone behind some of the week’s leading data reports. Consumer confidence came in at 97.2, up two points from the median forecast of 95.2. The U.S. GDP beat out forecasts by 0.7%, jumping to 3.0% compared to a projection of 2.3%, a fact that Trump highlighted in one final plea for the Fed to cut rates before the FOMC decision became public. The generally optimistic economic reports served to undercut bets that the Fed may levy a surprising rate cut on Wednesday, and more favorable economic data weighed heavily on safe haven demand. 

Two main economic reports will dominate headlines heading into the rest of this week. On Thursday, the Personal Consumption Expenditures (PCE) index, one of the Fed’s core measures of inflation, should shed more light on where prices may be heading. Friday will see the release of a fresh U.S. economic report for the month of July. As Fed Chair Powell pointed out to reporters, an unexpected drop in the labor market could serve as justification to adjust economic policy.