29.01.2025 09:31
The Fed's decision, which will be decisive for the gold and foreign exchange markets, will be announced this evening. Investors are closely monitoring the interest rate decision to be announced at 22:00, which is expected to have an impact on gold and currency exchange rates, as well as the comments from Fed officials regarding the macroeconomy at 22:30.
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Federal Reserve officials are expected to keep interest rates steady this week to allow themselves more time to assess how inflation is falling and how President Donald Trump's policies will impact the economy.
INFLATION HIGHER THAN EXPECTED
Many policymakers have said they expect fewer interest rate cuts this year following data showing the U.S. economy is on solid ground and inflation is higher than expected. Data for December on the personal consumption expenditures price index, the Fed's preferred inflation gauge, will be released on Friday. Still, after a series of surprising data and uncertainty about how the U.S. economy will respond to Trump's bold new policies on trade, taxation, immigration, and regulation, it is unlikely that officials will stick to a specific interest rate path. EY's chief economist Gregory Daco said, "They are skipping the interest rate cut. However, they want to keep as much optionality as possible to adjust the Fed funds rate more throughout the year."
CRITICAL DECISION TO BE ANNOUNCED AT 22:00
The Fed will announce its interest rate decision today at 22:00, and Fed Chairman Jerome Powell will speak at 22:30. Fed watchers do not expect much change in the Federal Open Market Committee's post-meeting statement. Daco noted that the current statement, referring to "the scope and timing of further adjustments," provides policymakers with the flexibility to change their approaches as needed depending on what is happening in the economy. It is almost certain that reporters will press Powell on how he and his colleagues are accounting for Trump's policies and proposed plans in their economic outlooks. Updated forecasts from Fed officials are not expected until the March policy meeting.
UPWARD RISKS TO INFLATION NOTED
However, the minutes from the December meeting showed that "some" participants included placeholder assumptions about Trump's potential plans in their economic projections and that "almost all participants" noted that upward risks to inflation have increased. According to Daco, investors also want to hear more from Powell about the "neutral rate" or the level at which the Fed neither stimulates nor cools the economy. Officials had raised their neutral interest rate forecasts over the past year. If many policymakers believe interest rates are close to that point, it signals not only a slower pace of cuts but also fewer total reductions.
HOW WILL GOLD AND CURRENCY PRICES BE AFFECTED?
As much as the interest rate decision to be announced by the Fed, the assessments it will make regarding the macroeconomy afterward are always closely monitored. However, the market's expectation that the Fed will keep rates steady, based on evaluations from previous reports, makes the Fed's assessments even more significant. Experts agree that a steady Fed rate will not create major fluctuations in the markets. However, they note that the uncertainty over whether the Fed's assessment will be hawkish or dovish could alleviate this uncertainty to some extent. If the Fed signals a future interest rate cut in its comments this evening, it is suggested that the dollar could weaken while gold could rise. However, they also note that hawkish comments from the Fed could strengthen the dollar and suppress gold prices.
NOTE: The content, comments, and information contained in this news article are not investment advice.
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