Gold price soars to new record after decision of 'powerful man' in America

Fed keeps interest rates unchanged

The US Federal Reserve (Fed) last night (March 19) decided to keep the benchmark interest rate unchanged at 4.25-4.5%/year even though the consumer price index in February increased weaker than expected, at 2.8% compared to the same period last year.

Inflation is more stable, but prices of goods and services are at risk of rising due to trade and geopolitical tensions - this is a factor that makes the Fed cautious not to continue easing monetary policy, which has been tightened since mid-2022 after the Russia-Ukraine conflict.

Normally, a cautious decision by the Fed would cause the US dollar to appreciate, thereby putting pressure on gold prices. However, the market situation has been different. The US dollar continues to decline and gold climbs to a new record high.

Despite the high inflation risk from the trade war, the Fed still forecasts two more rate cuts in 2025, totaling about 50 basis points.

Also at last night's meeting, officials updated their interest rate and economic projections for 2025 and 2027, adjusting the pace of tapering off bond holdings. Accordingly, the Fed lowered its economic growth forecast to just 1.7% for 2025, instead of the previous 2.1%.

The Fed also revised its core inflation forecast to 2.8%, up from 2.5% previously.

Gold prices rose to a new high after the Fed's decision. Photo: CNB

The Fed continues to maintain a cautious stance because of the “current climate of uncertainty” and increased uncertainty about the economic outlook. Meanwhile, the main task of the US monetary policy-making agency is to maximize employment and control inflation at low levels.

The divide was even more pronounced among Fed members, with four calling for no change in rates through 2025, up from just one at the December meeting.

Forecasts also show the Fed will have two interest rate cuts in 2026 and one more in 2027. The Fed expects the long-term benchmark interest rate to stabilize at around 3%.

The Fed's decision comes amid a volatile start to President Donald Trump's second term in office, with a series of tariffs on steel, aluminum and other goods that have sent financial markets into a tailspin. Washington has threatened more tariffs as early as next month.

Thus, the Fed continues to maintain its “pause” policy. However, the US and the world are still in a monetary easing cycle to cope with slowing economic growth.

How are the world financial and commodity markets?

Although the Fed did not cut interest rates, it still sent a clear signal about the trend of monetary easing in 2025. This is a factor that helped the US stock market increase strongly. The Dow Jones Industrial Average increased by more than 380 points (equivalent to an increase of more than 0.9%).

The broad S&P 500 index erased most of its losses since late February.

The US stock market had previously fallen sharply and had fallen into recession. However, according to Fed Chairman Jerome Powell, the US economy is “generally strong and has made significant progress”, “labor market conditions are solid, inflation has moved closer to the 2% long-term target, although it remains high”.

Mr Powell also said any impact from tariffs on inflation would likely be short-term and “transitory”.

However, gold continued to rise and set a new record high after the Fed meeting. Spot gold prices reached nearly $3,055/ounce (a historical peak) and by 8:30 a.m. on March 20, they were at $3,052/ounce.

Gold remains a cash-rich asset when inflation is high and/or financial markets are volatile. Falling interest rates and a weakening US dollar are also supportive factors for gold.

Escalating geopolitical uncertainty in the Middle East and continued unrest in Ukraine sent gold prices soaring. Russia and Ukraine are accusing each other of violating a new agreement to refrain from attacking energy targets just hours after US President Donald Trump spoke by phone with Russian President Vladimir Putin.

Oil prices were flat after the Fed's statement. Brent crude edged up to $70.8 a barrel, while WTI crude rose 0.4% to $67.2 a barrel.

Fed Chairman Jerome Powell stressed that the central bank will closely monitor economic developments and is ready to adjust monetary policy if necessary. However, many people are concerned about Mr. Powell's "temporary" phrase when talking about the impact of tariffs on inflation.

During the Covid-19 pandemic (2021-2022), Powell also described the inflation increase as "transitory". But in fact, inflation reached 9.1% in June 2022 and has persisted until now.

On the morning of March 20, the People's Bank of China (PBoC) also kept its interest rate policy unchanged as tariff threats put pressure on the yuan (CNY). The PBoC kept its one-year loan prime rate unchanged at 3.1% and its five-year rate at 3.6%.

Jerome Powell doesn't know what will happen under Trump, Fed stops cutting interest rates Fed Chairman Jerome Powell doesn't know what will happen to tax, immigration and fiscal policies under Donald Trump. This is the factor that makes the US central bank stop cutting interest rates to wait and see.