The Dow Jones Industrial Average (DJIA) held in place on Thursday, churning chart paper near record highs as investors reconsidered their stance following the Federal Reserve’s (Fed) latest appearance. The Fed delivered a second straight quarter-point interest rate cut this week, as many broadly expected. However, a decidedly cautious appearance from Fed Chair Jerome Powell has dashed market hopes for a threepeat rate cut in December onto the rocks.
As noted by Fed Chair Powell during Wednesday’s post-rate-cut press conference, the still-ongoing US federal government shutdown has dried up the flow of official data sources, specifically key inflation metrics and critical monthly labor data. Lacking the two main information streams that allow the Fed to perform its dual functions of controlling inflation and supporting employment, Fed Chair Powell warned that Fed policymakers may be forced back into a wait-and-see stance until official numbers can resume regular reporting.
Threepeat rate cut when?
With the Fed facing an inability to monitor the economy, market bets of a third consecutive rate cut on December 10 have faltered, with rate traders placing a much higher emphasis on the Fed’s first policy meeting in 2026 for a third rate trim. If the Fed misses December’s rate cut opportunity, investors will be hoping for a follow-up rate cut on January 28, with a few particularly begrudging rate betters seeing a third cut in March of next year.
Dow Jones daily chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
