As 2024 wrapped up, all seemed to be going according to plan for the Federal Reserve, with the Federal Open Market Committee (FOMC) cutting interest rates by yet another quarter point. This rate cut was part of an ongoing series of rate cuts—a longer-term plan to ease monetary policy as inflation calmed down. It could have been a benign ending to the year.
Instead, that ending was derailed when official statements from the central bank and comments by Fed officials revealed that monetary policy was changing direction. Suddenly, the easing plan was thrown out the window.
Our nation’s central bank is shifting gears.
Along with a statement explaining its reasoning for the quarter-point rate cut, the FOMC reduced its projected future interest rate cuts and pushed back when the next one would occur. This change in policy threw a wet blanket on expectations that monetary policy would continuously become more accommodating to market growth.
In a press conference following the announcement, Federal Reserve Chair Jerome Powell stated, “As we think about further cuts, we’re going to be looking for progress on inflation. We have been moving sideways on 12-month inflation,” indicating dissatisfaction at the Fed’s progress toward subduing inflation. The central bank’s official inflation forecast doesn’t have inflation reaching the bank’s goal of 2% until 2027, a year later than previously projected.
This change in policy could impact the economy in 2025.
As part of an immediate reaction to the FOMC statement and Powell’s comments, the Dow Jones Industrial Average fell by 1,123 points, ending the day 2.58% lower than it had started. This reaction could speak to trouble to come.
Stricter-for-longer Federal Reserve policy makes the cost of borrowing—and therefore the cost of conducting business—more expensive. The longer interest rates stay high, the more of a drag this policy could have on the economy, which could contribute to weaker stock market performance.
No matter what happens in 2025, gold can help you prepare and protect your savings.
Regular readers of “Gold News & Views” will remember that I have spoken about the potential pitfalls of a stricter policy before—and the often-important protection of owning a hedge like physical gold. The Fed’s decision to hold rates steady for longer could be a sign that inflation has yet to be tamed and that more economic uncertainty is on the way—a factor that has historically supported growth in gold prices. High interest rates could also weigh down stocks—another reason to own a hedge like precious metals.
Add in major supportive factors still in play for gold prices, such as geopolitical uncertainty and heightened central bank demand, and it’s no wonder that a recent survey shows Wall Street banks expecting gold prices to rise in 2025. In the year to come, the yellow metal may prove invaluable for those looking to protect their hard-earned savings.
