Gold prices recovered some of their losses on Thursday after the Federal Reserve raised interest rates for the first time in three years and signalled that further tightening could follow before the end of 2026.
December gold futures initially fell to $4,290 following Wednesday’s policy announcement before recovering to $4,353 on Thursday morning.
Spot gold followed a similar pattern, rebounding to $4,314 an ounce after reaching a post-announcement low of $4,252.
The Federal Open Market Committee (FOMC) voted unanimously to increase its benchmark interest rate by 25 basis points, bringing the target range to 3.75%–4.00%.
The decision was accompanied by comments from Fed Chair Kevin Warsh emphasising the central bank’s commitment to addressing persistent inflation.
“This summer’s inflation data doesn’t tell me that underlying trends have significantly improved,” Warsh said during the press conference following the announcement.
Higher Treasury Yields and Stronger Dollar Pressure Gold
Financial markets interpreted Warsh’s comments as indicating a restrictive monetary policy stance.
The yield on two-year US Treasury securities reached its highest level since July 2024, while the US dollar index rose above 100 for the first time since late July.
Both developments added pressure to gold prices.
“The U.S. central bank’s hike is hitting gold through a stronger dollar and higher real yields,” said Elias Haddad, global head of market strategy at Brown Brothers Harriman.
Higher interest rates can reduce the appeal of gold relative to interest-bearing assets because the precious metal does not generate interest income.
A stronger dollar can also make gold more expensive for buyers using other currencies.
Fed Projections Indicate Further Rate Increase in 2026
The Federal Reserve’s latest interest-rate projections suggested that its tightening cycle may continue this year.
Of the 18 officials who submitted projections, 16 anticipated at least one additional rate increase in 2026. Four expected two further increases, while only two projected no additional moves following Wednesday’s decision.
Warsh did not submit an individual interest-rate projection.
The projections indicated no further increases in subsequent years, with one rate cut projected for 2028 and at least one for 2029.
These figures represent policymakers’ individual expectations rather than a binding schedule of future decisions.
Inflation Forecasts Revised Higher
Federal Reserve officials also increased their inflation projections for 2026.
Headline inflation, measured by the consumer price index, is expected to reach 3.7%, while core inflation, which excludes food and energy, is forecast at 3.4%.
Both projections were raised by 0.1 percentage points from the estimates published in June.
The central bank expects inflation to decline in 2027, with headline inflation projected at 2.3% and core inflation at 2.5%.
However, its projections do not indicate a return to the inflation target before 2029.
The combination of higher interest rates, an appreciating dollar and expectations of additional monetary tightening remains a key consideration for gold markets.