GOLD INVESTORS have a revised US interest-rate backdrop to assess after the Federal Reserve reduced its benchmark target range by one-quarter of a percentage point yesterday.
The decision lowered the federal funds target range to 3.50–3.75%.
The Fed said economic activity was expanding moderately, while employment gains had slowed and unemployment had edged higher through September.
It judged that downside risks to employment had increased, although inflation remained somewhat elevated and had risen from earlier in the year.
The vote revealed differing views. Stephen Miran preferred a half-percentage-point reduction, while Austan Goolsbee and Jeffrey Schmid favoured leaving rates unchanged.
The central bank said the timing and extent of further adjustments would depend on incoming data, the economic outlook and the balance of risks.
For bullion, lower interest rates can reduce the opportunity cost of holding an asset without interest income. However, gold’s response also depends on currency movements, inflation expectations and how much easing investors already anticipated.
The decision highlights the Fed’s competing considerations: supporting employment while continuing to pursue its 2% inflation objective.
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