Federal Reserve Holds Rates Steady at 4.25%–4.50%
The Fed kept rates unchanged, but with a slightly dovish tone as projections signal a path toward rate cuts in 2026.
Key Highlights:
Inflation Cooling:
PCE inflation expected to fall from 3.0% (2025) to 2.1% (2027). Core PCE also moderates, signaling progress toward the 2% target.
Rate Cuts Ahead:
Fed's median rate projections fall:
▸ 3.9% (2025) → 3.6% (2026) → 3.4% (2027) → 3.0% (long run)
Growth & Labor:
GDP growth revised lower to 1.4%, while unemployment remains stable at 4.5%.
QT Continues:
Balance sheet reduction stays on course — no tightening or pause.
USD Outlook:
The USD is likely to weaken moderately in the medium term.
➤ Why?
The Fed is signaling future rate cuts, and with inflation easing, the urgency to keep rates high is fading. As rate differentials narrow with other currencies, USD strength may fade, especially if risk sentiment improves.
Bearish to Neutral Bias on DXY
Look for weakness particularly against higher-yielding and risk currencies (e.g., AUD, NZD, GBP) if data supports dovish follow-through.
Gold (XAUUSD) Outlook:
Gold could benefit from the Fed’s dovish tone.
➤ Why?
Lower rate expectations reduce the opportunity cost of holding non-yielding assets like gold. If the USD weakens and yields fall further, XAUUSD may see upside momentum.
Bullish Bias for Gold
Watch for a breakout if inflation data continues to cool and rate-cut expectations grow stronger.
Trader’s Takeaway:
A short USD bias is developing unless inflation surprises to the upside.
Gold eyes bullish breakout zones above recent resistance levels.
Key catalysts ahead: NFP, CPI, PCE reports.
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