Traders expect interest rate cuts in 2025 to be minimal

The Federal Reserve shocked markets at the September FOMC meeting by announcing a half-point interest rate cut to kick off a period of economic easing, as signs of a slowing employment environment began to surface.

Now Fed Chairman Jerome Powell is signaling the need to put on the brakes — and bond market traders are taking notice.

The precious metals market has had a rough start to November, with gold giving up around $225 an ounce, down 8% in just two weeks. Silver is down about $2.50 per ounce this month, down 7.6%. Gold traded at the $2,560 level on Friday, while silver was just above $30 an ounce.

Gold prices fell 8% in November, a price drop of $225 per ounce. (Source: TradingView)

Not so fast

In a speech Thursday in Dallas, Powell said: “The economy is not signaling that we need to rush to cut rates. The strength we see in the economy right now gives us the opportunity to approach our decisions carefully.”

These comments were in stark contrast to Powell’s assessment of the economy in September, when he raised concerns about what appeared to be a slowing labor market amid lower inflation rates.

By the end of 2025, investors point to a 98.2% chance of a rate cut, but largely expect only a half-point cut. (Source: CME FedWatch)

The Fed has not yet achieved its 2% inflation target, although it remains close to the target.

Gold tends to perform better in a lower interest rate environment, and recent trading is indicative of the Fed’s latest rhetoric suggesting a favorable interest rate environment is ahead.

The US dollar has also worked against gold and silver prices. The currency has shown extreme strength since the election of former US President Donald Trump to a four-year term.

Traders are divided between expecting a quarter-point rate cut or no change for the upcoming FOMC meeting scheduled for December 18. (Source: CME FedWatch)

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