The Federal Reserve is scheduled to announce its latest decision on interest rates on Wednesday. Inflation has increased for a third consecutive month, with the ongoing conflict involving Iran contributing to higher prices in May. Inflation surpassed 4% for the first time in three years.
The announcement will mark the first possible adjustment of the benchmark interest rate since Trump nominee Kevin Warsh began his four-year term as Fed chair last month.
During his term as a Fed governor in the late 2000s and early 2010s, Warsh gained a reputation as an interest-rate “hawk,” meaning he generally preferred higher interest rates as a means of ensuring low and stable inflation.
Last year, Warsh voiced support for lower interest rates. At his Senate confirmation hearing in April, Warsh emphasized the threat posed by elevated inflation.
“When inflation surges — as it has done in recent years — grievous harm is done to our citizens, especially to the least well-off,” Warsh said.
Bucking typical norms, former Fed Chair Jerome Powell will cast a vote on interest rates as a member of the Fed’s 12-person policymaking board.
The policy move is also set to arrive at a moment of flux for the nation’s economy, just days after an agreement between the United States and Iran offered hope for some price relief.
The U.S.-Iran accord, set to be formally signed on Friday, came as gasoline prices fell below $4 a gallon for the first time since March. Still, fuel costs stand well above pre-war levels, and an array of grocery prices remains elevated.
Futures markets overwhelmingly expect the Fed to hold interest rates steady when policymakers meet on Wednesday, according to the CME Fed Watch Tool, a measure of investor sentiment.
In recent weeks, however, odds have risen for a potential interest rate hike by the end of 2026, the tool showed, granting a roughly four in 10 chance of a quarter-point increase in December.
The benchmark rate stands at a level between 3.5% and 3.75%. That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.
In recent weeks, however, odds have risen for a potential interest rate hike by the end of 2026, the tool showed, granting a roughly four in 10 chance of a quarter-point increase in December.
The shift in expectations came after a stronger-than-expected jobs report earlier this month showed robust hiring in May. In theory, a resilient labor market could afford central bankers leeway to raise interest rates in an effort to dial back inflation, since elevated borrowing costs risk a hiring slowdown.
Markets are particularly sensitive to any signal on whether policymakers still see scope for easing later this year.
A hawkish tone from the Fed could lift Treasury yields and the dollar, potentially capping ’s recent rally.
Underlying demand for gold also remains robust. A recent World Gold Council survey showed that 45% of central bank reserve managers expect to increase their gold holdings over the next year, underscoring continued interest in the metal as a portfolio diversifier and geopolitical hedge.
On evaluating the movements of gold futures on the daily chart, I find that gold futures have stood still since Monday, are trying to hold above the significant support at the 200 EMA ($4,318.30), where a breakdown could push the futures into bearish territory for a long time.
Undoubtedly, gold futures are teetering in a narrow range since opening, and look ready to react to the Fed’s move today while technically below the formation of a “Bearish Crossover,” which has already been formed after piercing of the 100 EMA ($4,566) by the 50 EMA ($4,538), 20 EMA ($4,400) and the 9 EMA ($4,326).
I find that though gold futures could react strongly after the Fed’s move tonight, if the Federal Reserve hikes interest rates, the directional move will follow this overreaction, as the dents caused by the U.S.-Iran conflict will take a long time to normalize inflationary pressure.
Disclaimer: Readers are advised to take any position in gold at their own risk, as this analysis is solely based on observations.
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