Gold prices recovered on Thursday morning after initially declining in response to the Federal Reserve’s first interest-rate increase in three years, although expectations of further monetary tightening continued to affect the market.
December gold futures fell to $4,290 immediately following Wednesday’s announcement before recovering to $4,353.
Spot gold also rebounded, rising to $4,314 an ounce after touching a post-decision low of $4,252.
The Federal Open Market Committee (FOMC) unanimously approved a 25-basis-point increase in the benchmark federal funds rate, bringing its target range to 3.75%–4.00%.
Federal Reserve Chair Kevin Warsh reinforced the central bank’s focus on inflation during the press conference that followed.
“This summer’s inflation data doesn’t tell me that underlying trends have significantly improved,” Warsh said.
His remarks were interpreted as a signal that additional interest-rate increases remained possible.
Treasury Yields Climb as Dollar Strengthens
The Fed’s decision and accompanying commentary prompted movements in US bond and currency markets.
The yield on two-year US Treasury securities reached its highest level since July 2024, while the dollar index climbed above 100 for the first time since late July.
Both developments contributed to pressure on gold.
Elias Haddad, global head of market strategy at Brown Brothers Harriman, attributed the decline in gold prices to the stronger US currency and higher inflation-adjusted bond yields.
“The U.S. central bank’s hike is hitting gold through a stronger dollar and higher real yields,” Haddad said.
Because gold does not pay interest, higher yields on competing assets can make the metal less attractive to investors.
Dollar appreciation can also increase the cost of purchasing gold for investors holding other currencies.
Most Fed Officials Expect Further Tightening This Year
The Federal Reserve’s updated interest-rate projections indicated that most policymakers anticipated at least one additional increase before the end of 2026.
Of the 18 officials who submitted projections, 16 expected further tightening.
Four projected two more rate increases, while only two anticipated no additional moves following Wednesday’s decision.
Warsh did not provide an individual rate projection.
The projections showed no further increases in subsequent years, with one reduction indicated for 2028 and at least one for 2029.
The estimates represent individual policymakers’ expectations and do not commit the Federal Reserve to a predetermined policy path.
Inflation Outlook Revised Upwards
Alongside the interest-rate decision, Federal Reserve officials raised their inflation forecasts for 2026.
Headline inflation, measured by the consumer price index, is projected to reach 3.7%, while core inflation, excluding food and energy, is expected to stand at 3.4%.
Both forecasts were increased by 0.1 percentage points compared with the June projections.
For 2027, policymakers expect headline inflation to decline to 2.3% and core inflation to ease to 2.5%.
The latest projections nevertheless indicate that inflation will not return to the central bank’s target before 2029.
Gold’s recovery from its initial post-announcement losses therefore took place against a backdrop of higher US interest rates, stronger Treasury yields and expectations of further monetary tightening.
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