The Federal Reserve is expected to hold its benchmark interest rate steady at 4.25%–4.50% at the May 7, 2025, FOMC meeting, despite strong pressure from President Trump to cut rates. The Fed is taking a cautious, wait-and-see approach as it assesses the economic impact of Trump’s sweeping tariffs, which have raised inflation concerns but also threaten to slow economic growth.
How the Fed Rate Decision Affects the Dollar
Steady Rates Support the Dollar: By keeping rates unchanged, the Fed maintains the yield advantage of the US dollar over other major currencies, which tends to support or even strengthen the dollar in the near term.
Uncertainty and Volatility: However, with markets pricing in possible rate cuts starting as soon as July 2025, the dollar could become more volatile. If the Fed signals a dovish outlook or hints at upcoming cuts, the dollar may weaken as traders anticipate lower yields ahead.
Tariff Impact: The uncertainty from tariffs complicates the outlook. If tariffs lead to higher inflation, the Fed may be forced to keep rates high, supporting the dollar. If tariffs drag down growth, rate cuts could come sooner, weakening the dollar.
How the Fed Rate Decision Affects Gold
High Rates Cap Gold’s Upside: When the Fed holds rates high, gold’s appeal can be limited because higher yields on cash and bonds make non-yielding gold less attractive.
Dovish Signals Are Bullish for Gold: If the Fed hints at future rate cuts or acknowledges economic risks from tariffs, gold prices typically rise as the dollar weakens and investors seek safe havens. Gold has already surged in anticipation of future easing and ongoing geopolitical and trade risks.
Inflation and Uncertainty: Persistent inflation due to tariffs, combined with economic uncertainty, can boost gold demand as a hedge, even if rates remain high in the short term.
Summary Table
Fed Action/Signal Dollar Impact Gold Impact
Hold rates steady Supports/stabilizes USD Caps gold upside
Hint at future rate cuts Weakens USD Bullish for gold
Tariff-driven inflation Mixed (could support USD short-term, weaken later if growth slows) Bullish for gold
Economic slowdown Weakens USD Bullish for gold
In short:
The Fed’s decision to keep rates steady is likely to support the dollar for now and limit gold’s immediate upside.
If the Fed signals rate cuts ahead-especially due to tariff-driven economic risks-the dollar may weaken and gold could rally further.
Markets will watch Fed Chair Powell’s press conference closely for any shift in tone or forward guidance.
Would you like a deeper look at how upcoming US data releases could shift Fed policy and market reactions?
How the Fed Rate Decision Affects the Dollar
Steady Rates Support the Dollar: By keeping rates unchanged, the Fed maintains the yield advantage of the US dollar over other major currencies, which tends to support or even strengthen the dollar in the near term.
Uncertainty and Volatility: However, with markets pricing in possible rate cuts starting as soon as July 2025, the dollar could become more volatile. If the Fed signals a dovish outlook or hints at upcoming cuts, the dollar may weaken as traders anticipate lower yields ahead.
Tariff Impact: The uncertainty from tariffs complicates the outlook. If tariffs lead to higher inflation, the Fed may be forced to keep rates high, supporting the dollar. If tariffs drag down growth, rate cuts could come sooner, weakening the dollar.
How the Fed Rate Decision Affects Gold
High Rates Cap Gold’s Upside: When the Fed holds rates high, gold’s appeal can be limited because higher yields on cash and bonds make non-yielding gold less attractive.
Dovish Signals Are Bullish for Gold: If the Fed hints at future rate cuts or acknowledges economic risks from tariffs, gold prices typically rise as the dollar weakens and investors seek safe havens. Gold has already surged in anticipation of future easing and ongoing geopolitical and trade risks.
Inflation and Uncertainty: Persistent inflation due to tariffs, combined with economic uncertainty, can boost gold demand as a hedge, even if rates remain high in the short term.
Summary Table
Fed Action/Signal Dollar Impact Gold Impact
Hold rates steady Supports/stabilizes USD Caps gold upside
Hint at future rate cuts Weakens USD Bullish for gold
Tariff-driven inflation Mixed (could support USD short-term, weaken later if growth slows) Bullish for gold
Economic slowdown Weakens USD Bullish for gold
In short:
The Fed’s decision to keep rates steady is likely to support the dollar for now and limit gold’s immediate upside.
If the Fed signals rate cuts ahead-especially due to tariff-driven economic risks-the dollar may weaken and gold could rally further.
Markets will watch Fed Chair Powell’s press conference closely for any shift in tone or forward guidance.
Would you like a deeper look at how upcoming US data releases could shift Fed policy and market reactions?
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.