Fed Cuts Rates by 25 bps, Market Tempers Expectations for Further Easing

The Federal Reserve (Fed) announced its first rate cut of the year, lowering the federal funds rate by 25 basis points. This initially fueled a rally in U.S. Treasuries, but Thursdays (18th) jobless claims data revealed continued labor market resilience, tempering expectations of additional cuts by year-end. Treasury gains stalled, with yields moving higher.

The latest data showed weekly initial jobless claims declined, offsetting the prior week‘s notable increase. Analysts noted this underscores the labor market’s resilience, which contradicts the Feds message that the rate cut was largely a “risk management” measure, given inflation remains above target.

According to the Fed‘s updated dot plot, rate reductions are still projected for the October and December meetings. However, Thursday’s labor data weakened market confidence in multiple cuts. Fed funds futures currently price in roughly an 80% probability of one 25 bps cut each on October 29 and December 17, though expectations for both cuts to materialize have eased slightly.

Markets are also closely watching the Feds independence. Some observers caution that if political influence on policy decisions is perceived, it could drive investors toward inflation-protected assets such as TIPS as a hedge.

Consensus still points to at least one more rate cut before year-end, but resilient labor conditions and persistent inflationary pressures are limiting the scope for more aggressive easing. The next critical data point will be the September jobs report, due October 4, which will likely reshape expectations for the Feds policy trajectory.

[Figure 1: U.S. Benchmark Interest Rate]

The Fed cut rates by 25 bps as expected. However, following Chair Powells remarks, profit-taking emerged, and gold prices pulled back from record intraday highs on Wednesday (17th).

Gold Technical Analysis

A corrective pullback—or at least a period of consolidation—is considered a healthy development. A deep retracement is unlikely unless gold falls below the key support at $3,550. As long as this level holds, the short-term uptrend should remain intact.

Gold continues to trade around the $3,650 range. Traders may consider initiating small long positions near $3,625–3,600, with stop-losses set at $10–20 below entry.

• Resistance: $3,650/oz

• Support: $3,600/oz

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