The US Federal Reserve held its seventh meeting of 2025 from Tuesday (October 28) to Wednesday (October 29) amid growing division between doves and hawks as job market growth slows and the threat of higher inflation.
The central bank met analysts’ expectations by lowering the federal funds rate by 25 basis points to the 3.75 to 4 percent range. It marks the second time this year that the Fed has cut interest rates. Interest rates haven’t been below 4 percent since September 2022.
The Federal Reserve Board of Governors were reportedly split over those concerned with preventing a further slowdown in the US labor market and those fearing the fight against inflation is far from over. Lowering interest rates in turn lowers the cost of borrowing, which can provide businesses with more runway to grow their workforce. However, increasing the available money supply by easing access to borrowing can also increase inflation.
The September consumer price index (CPI) data showing inflation rose to 3.0 percent for the 12 months ending September after rising 2.9 percent over the 12 months ending August. Despite this higher inflationary environment, a weakening labor market has become the focus of the Fed’s dual mandate of stable prices and maximum employment.
The ongoing US government shutdown has delayed the release of key economic data, including the September US jobs report originally slated for publication on October 3.
Therefore, the most recent US jobs report comes from August. It indicates an increase of just 22,000 new workers, while the unemployment rate ticked up to 4.3 percent from 4.2 percent in July.
Until the government funding legislation is passed, all economic reports are on hold and the Federal Reserve is flying blind when it comes to planning the best course of action for the country’s economy.
Filling in the gaps, CNN reports that financial data firm FactSet has reported that the US added 50,000 jobs in September, while the unemployment rate held steady at 4.3 percent. While economists expect a pickup in jobs this time of year when the summer ends; however, compared to last year’s 240,000 jobs, this September’s gains are significantly weaker.
“Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue to decline in this less dynamic and somewhat softer labor market,” said Chair Jerome Powell. “The downside risks to employment appear to have risen in recent months.”
At the same time as its interest rate decision the Fed also announced a stop to its quantitative tightening activities as of December 1, 2025. For the past three years the independent government agency has been working to reduce its balance sheet from US$9 trillion in 2022 to US$6.6 trillion today. The move comes following recent stress signals in the short-term lending markets.
The next Fed interest rate decision will come on December 10, the last Fed meeting for 2025. In his speech to reporters, Powell strongly suggested another rate cut this year is not necessarily a given.
“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” he said. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”
Also by the end of the year, President Donald Trump intends to announce a replacement for Obama appointee Federal Reserve Chair Jerome Powell whose term expires in May 2026. Trump has been critical of the Fed and Powell in particular, saying they haven’t moved quickly enough to lower rates.
On Monday (October 27), US Treasury Secretary Scott Bessent announced a short list of candidates to replace Powell, including Fed Governors Christopher Waller and Michelle Bowman, National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh, and BlackRock executive Rick Rieder.
The gold price rebounded nearly 2 percent to US$4,031.10 in the lead up to the rte decision, but quickly consolidated just below the US$4,000 mark to US$3,987.10 per ounce shortly after. Silver spiked as high as US$48.25 per ounce following the meeting, still trading near 14 year highs.
Lower interest rates leads to lower returns on fixed-income investments like bonds, which makes gold a more attractive investment.
Looking ahead, Mykuliak expects gold to trade within a range of US$3,900 and US$4,400
in the last quarter of the year. Further rate cuts or rising geopolitical tensions could push gold prices even further. “Into 2026, gold should maintain an upward trajectory, potentially gaining another 5 to 12 percent, as real rates decrease and central banks keep diversifying reserves,” she noted.
Equities were mixed on Wednesday, with the S&P 500 (INDEXSP:INX) down 0.56 percent to reach 6,871.47. Meanwhile, the Nasdaq-100 (INDEXNASDAQ:NDX) gained .21 percent to come in at 26,066, and the Dow Jones Industrial Average (INDEXDJX:DJI) down 0.72 percent, coming to 47,530.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.