Gold jumps after Fed rate cut, extends gains on dovish guidance

Federal Reserve’s rate cut sparks volatility, sending gold prices to daily highs

On Wednesday, the Fed cut rates to 3.50%-3.75% as expected and kept the door open for just one rate cut in 2026. The Federal Open Market Committee (FOMC) vote split was 9-3, with Governor Miran voting for a 50 bps cut, while Jeffrey Schmid and Austan Goolsbee voted to hold rates unchanged.

The Summary of Economic Projections (SEP) showed that most members hinted that the fed funds rates for the next year would be around 3.4%, implying that policymakers could cut 25 bps next year. For the longer term beyond 2028, Fed policymakers see neutral rates at around 3%.

Highlights of the monetary policy statement

In the statement, the Fed mentioned, “Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.”

They added that, “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.”

Gold price reaction - Hourly chart

Initially, XAU/USD headed south, but as the decision was perceived as dovish, Gold began to rally, printing a daily high of $4,219.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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