Fed Holds Rates Steady as Inflation Persists, Gold Climbs Higher

Yesterday the Federal Open Market Committee (FOMC) announced its decision to hold the federal funds rate steady within a target range of 4-1/4 to 4-1/2 percent, signaling caution as inflation remains persistently high and economic uncertainty lingers. Fed Chair Jerome Powell maintained an optimistic stance, asserting the economy remains in a “solid position,” despite continued volatility in trade policies and net exports. However, investors greeted the news by pushing gold prices to a fresh high of $3,397 an ounce on Wednesday, reflecting market skepticism around the Fed’s cautious optimism and the ongoing worries about maintaining purchasing power.

Powell mentioned that the unemployment rate is currently at 4.2 percent, near levels signaling “maximum employment,” with payroll job gains averaging approximately 135,000 per month over the last three months. Still, GDP shrank slightly in the first quarter of 2025, largely attributed to businesses front-loading imports in anticipation of looming tariffs. This contraction contributes to doubts regarding the Fed’s balancing act: keeping inflation in check without stalling economic growth.

The latest FOMC Summary of Economic Projections paints a lukewarm growth outlook, forecasting GDP expansion at 1.4 percent for 2025 and a modest improvement to 1.6 percent in 2026—figures weaker than earlier projections released in March. Inflation, meanwhile, continues to inch above the central bank’s targeted 2 percent, with total PCE inflation reaching 2.3 percent over the past 12 months and core PCE at a concerning 2.6 percent as of May. The SEP projects inflation to average 3 percent through 2025, only gradually receding to 2.4 percent in 2026 and 2.1 percent by 2027.