Last week, investors listened intently to Federal Reserve Chair Jerome Powell's testimony, hoping for fresh clues on the future path of US interest rates. However, those expecting a breakthrough were left disappointed.
True to form, Powell chose a cautious tone in his comments, refusing to specify a clear future path for borrowing costs. Instead, he stated that Fed policymakers face no "risk-free" choice—potential pitfalls lurk everywhere. The Fed is now balancing the dual pressures of a cooling US labor market and persistent inflation. Theoretically, a rate cut could stimulate investment inflows and boost hiring, but it also risks accelerating price growth. The head of the regulator previously noted increased near-term risks for inflation, while risks for employment are tilted "to the downside."
Regarding the Fed's rate forecast, many officials anticipate a further reduction of half a percentage point at the regulator's final two meetings, which are scheduled for October and December 2025. Notably, 7 of the 19 projections forecast fewer cuts this year, suggesting that debates could be fierce ahead of the next Fed meetings.
Earlier, Chicago Federal Reserve President Austan Goolsbee warned he is not prepared for aggressive monetary policy easing, especially given elevated inflation risks. However, Steven Miran, a candidate for a vacant Fed governor seat nominated by the Trump administration, argued that the US central bank has set monetary policy at such a restrictive level that it could threaten the labor market.
Against this backdrop, markets are pricing in an 88% probability of another quarter-point interest cut at the Fed's October meeting. The possibility of an additional rate cut in December 2025 stands at 65%. According to UBS analysts, the Fed is trying to carefully plan the rate trajectory, but the current economic situation is forcing adjustments.
Furthermore, lower borrowing costs could reduce the cost of holding gold, thereby enhancing the appeal of precious metals. UBS also notes that Fed easing cycles outside of recessions have historically supported equities. Analysts conclude that further growth lies ahead, driven by artificial intelligence, profits, and resilient consumption.
