In the last few years, we’ve seen gold respond favorably to expectations that the Federal Reserve would be cutting interest rates. But what happens if the Fed decides to reverse course?
The Fed has been cutting interest rates but may soon change direction.
When, for the first time in years, the Federal Reserve’s Federal Open Market Committee (FOMC) cut interest rates by half a percentage point on September 18, 2024, it also set expectations for further rate cuts. The FOMC started to follow through during its November 7 meeting by cutting interest rates by another quarter of a percentage point, but since then it has cast doubt on the future of rate cuts.

Stubborn inflation numbers from September and October 2024 have led FOMC board members Raphael Bostic, Austan Goolsbee, and Christopher Waller to comment on uncertainty surrounding future interest rate cuts. While most board members seem to favor cutting rates one more time in December 2024, some are also signaling that they may want to hit the brakes on rate cuts in 2025.
Federal Reserve Chairman Jerome Powell has expressed a lack of urgency for future rate cuts.
On November 14, 2024, Powell said, “The economy is not sending any signals that we need to be in a hurry to lower rates” and noted that the Fed is not yet satisfied with the current rate of inflation, which rose from 2.4% in September 2024 to 2.6% in October 2024.
After Powell’s comments, futures markets as gauged by the CME FedWatch tool downgraded expectations for a December 2024 rate cut from 83% to 59%.
Economists are taking note of this new uncertainty. Wells Fargo senior economist Sarah House says the Fed is likely to cut rates only at every other meeting in 2025, while Deutsche Bank chief U.S. economist Matthew Luzzetti suspects the Fed will pause their rate cuts in 2025 entirely following a rate cut in December 2024.
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Whether you believe the Fed will lower rates or hold fast, gold remains positioned for long-term growth.
If rates are cut, gold prices may rise as they did in November 2024. This is because low interest rates can lead some portfolio holders to turn away from interest-bearing assets to other assets like gold. And if the Fed decides to hold rates, that could be a sign inflation has yet to be tamed and more economic uncertainty is on the way—another factor that has historically supported growth in gold prices.
Add in the other major supportive factors still in play for gold prices—geopolitical uncertainty and central bank demand in particular—and it’s no wonder JPMorgan projects prices as high as $3,000/oz. for gold by late 2025. And in the long term, as these factors persist and inflation continues to erode the purchasing power of the dollar, there’s no telling how high gold may rise.