Gold (XAU/USD) stabilized on Wednesday, with price action contained within the recent consolidation zone as markets braced for the Federal Reserve’s interest rate decision. At the time of writing, the XAU/USD pair is hovering near $4,204, down from the intraday high of $4,218.
The Fed will announce its monetary policy decision at 19:00 GMT, with markets leaning towards another 25 basis point cut that would bring the federal funds rate down to a range of 3.50%-3.75%. Expectations of lower borrowing costs keep bullion broadly supported, as lower interest rates reduce the opportunity cost of holding non-yielding assets such as gold.
However, speculation about a tougher cut is pushing US Treasury yields higher and weighing on gold, as markets scale back their expectations for any near-term easing in early 2026.
Against this backdrop, attention will be squarely on Fed Chairman Jerome Powell’s post-meeting press conference, along with the updated outline and economic outlook, for clearer signals on the pace of policy adjustments in the coming year.
Market drivers: All eyes on Powell, conspiracy point, and split federal vote
- The Fed has already eased policy twice this year, delivering successive 25 basis point cuts in September and October, which officials described as “risk management” cuts aimed at cushioning the economy amid evidence of easing labor market conditions. The last dot plot in September showed the median FOMC interest rate forecast of one cut in both 2026 and 2027, no change expected in 2028, and the long-term interest rate held steady at 3.0%.
- Markets are currently pricing in a 90% chance of a quarter-percentage point rate cut based on the Fed’s decision on Wednesday. Expectations for further easing remain modest, with the CME FedWatch tool showing only a 20% chance of another cut in January, rising to 33% in March and 37% in April.
- Fed Chairman Jerome Powell noted in the post-meeting news conference in October that there was a “growing chorus” within the committee saying it might be wise to wait before taking another step. Since then, policymakers have been divided, with some warning of persistent inflation risks while others highlight concerns about a gradual slowdown in the labor market. As a result, traders will be watching the split of votes and any dissent closely, looking for signs as to whether the committee leans more hawkish or cautious heading into 2026.
- President Donald Trump is preparing to begin the final round of interviews for the next Federal Reserve head, the Financial Times reported on Tuesday. National Economic Council Director Kevin Hassett remains the front-runner to succeed Jerome Powell when his term ends in May, administration officials told the outlet.
Technical Analysis: XAU/USD remains within range as traders await Fed catalyst
Gold remains in a holding pattern between $4,150 and $4,250 after breaking out of the symmetrical triangle formation, reflecting clear hesitation among traders ahead of the Fed’s decision.
From a structural point of view, this bias remains to the upside, with the breakout continuing and price action stabilizing above the major moving averages. A cautious outcome would leave the path of least resistance slanted to the upside, opening the door for a move above the $4,250 barrier. A sustained close above this area would strengthen the bullish momentum and reveal the next psychological target around $4,300.
On the other hand, any hawkish tone or retreat from 2026 easing expectations could keep gold within a range in the near term or lead to a modest pullback. Initial support is at $4,150, the lower bound of the current consolidation phase, with further decline towards $4,100, where the 50-day simple moving average (SMA) provides an important technical floor.
Federal Reserve Bank Questions and Answers
Monetary policy in the United States is shaped by the Federal Reserve Bank (Fed). The Federal Reserve has two missions: achieving price stability and promoting full employment. The primary tool for achieving these goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, it raises interest rates, which increases borrowing costs throughout the economy. This causes the US dollar (USD) to strengthen because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or when the unemployment rate is very high, the Fed may lower interest rates to encourage borrowing, which affects the dollar.
The Federal Reserve (Fed) holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC meeting is attended by twelve Fed officials – the seven members of the Board of Governors, the New York Fed president, and four of the remaining eleven regional Fed presidents, who serve one-year terms on a rotating basis.
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. Quantitative easing usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, where the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding, to purchase new bonds. This is usually positive for the value of the US dollar.
