After the Federal Reserve cut interest rates by 50 basis points on Wednesday (September 18), Federal Reserve Chairman Powell hinted that policymakers were not in a hurry to significantly cut interest rates, causing gold prices to fall sharply from historical highs by more than $53.

On Wednesday local time, the Federal Open Market Committee (FOMC) announced a 50 basis point rate cut after a two-day policy meeting in Washington, lowering the target range for the federal funds rate to 4.75% -5%. This is the first time the Federal Reserve has cut interest rates since March 2020.

Federal Reserve officials expect interest rates to drop to 4.4% by the end of 2024 and 3.4% in 2025. The decision to cut interest rates this time did not receive the support of all FOMC voting members. The statement shows that one person voted against a 50 basis point rate cut, while Federal Reserve Governor Bauman, who voted against, supported a 25 basis point rate cut. Bauman thus became the first Federal Reserve governor since 2005 to vote against the decision of the majority of FOMC members at the FOMC interest rate meeting.

Policy makers stated in the statement that they will consider making "additional adjustments" to interest rates based on "upcoming economic data, changing prospects, and risk balance. They also pointed out that the inflation rate is still at a high level to some extent, and employment growth has slowed down.

After the Federal Reserve cut interest rates, spot gold surged to a record high of $2600.15 per ounce.

The predicted grid plot of future interest rate paths shows that 10 out of 19 decision-makers tend to favor at least one 50 basis point rate cut during the last two interest rate meetings of the year.

Nick Timiraos, the spokesperson for the Federal Reserve, stated that the Fed's vote to lower interest rates by 50 basis points marks the first rate cut since 2020 and a bold start to the initiative. 11 out of 12 Federal Reserve members support the decision to cut interest rates, bringing the benchmark federal funds rate to the range of 4.75% to 5%. The quarterly forecast released on Wednesday shows that most officials expect to lower interest rates by at least 25 basis points at the November and December meetings. The decision to cut interest rates this time has firmly put the Federal Reserve into a new phase: attempting to prevent last year's rate hike from further weakening the US labor market by pushing borrowing costs to a 20-year high.

Will Rhind, founder of GraniteShares Advisors, stated that the beginning of the Federal Reserve's rate cutting cycle means that interest rates are falling and the US dollar will begin to weaken. His investment company manages a gold backed exchange traded fund (ETF).

Rhind said in an interview, "This is beneficial for gold. The next stimulus for gold will be that if people feel we are entering a recession and fear factors arise, they need to start buying gold as a hedge

Policy makers stated in Wednesday's statement that they now believe the risks of employment and inflation are "roughly balanced".

What did Powell say about the sharp drop in gold prices from historical highs?

But after Powell's speech, gold prices plummeted, dropping to a low of $2546.79 per ounce, a drop of over $53 from the previous historical high.

The Federal Reserve lowered interest rates by 50 basis points on Wednesday, but investors should not expect to continue cutting rates at this rate in the future.

Powell said at a press conference, "We have been waiting, and I think this patience has indeed paid off. We believe that inflation will continue to move towards below 2%, so I think that's why we are taking this strong measure today. I don't think anyone should see this and say, 'Oh, this is the new pace.'

Powell said, "I think we will carefully meet time and time again and make decisions during the meetings

Powell said, "We don't think we're falling behind; we think this is an appropriate time to cut interest rates; but it shows our determination not to fall behind; this rate cut is a manifestation of the Fed's commitment not to fall behind the economic situation

Powell also stated that the economy is "basically good" and expressed confidence that the job market can avoid the unemployment rate increase that has occurred in some past struggles against inflation.

He pointed out that the Federal Reserve's economic forecast is not a plan or decision; If the economy remains stable and inflation remains stubborn, policy adjustments may be slower; With the development of the economic situation, monetary policy will be adjusted to better achieve the goals

Powell said, "We are readjusting our policy stance; there is no indication in our (economic) forecast that we are eager to take action; the Federal Reserve's economic forecast is a baseline forecast; the actions we actually take will depend on the development of the economy; if appropriate, we can accelerate or slow down the pace of rate cuts, or even choose to pause them; this 50 basis point rate cut does not indicate that we are eager to take action

During Powell's speech, gold continued to rise, while US stocks rose and fell back. After the US dollar weakened, it rebounded strongly.

Powell said, "I currently don't see any signs that the possibility of an economic recession has increased. I can't see it. You will see the economy growing at a stable rate. You will see inflation falling. You will see the labor market still at a very stable level. So, I haven't seen that yet

Jay Hatfield, CEO of Infrastructure Capital Advisors, said, "The Federal Reserve took proactive actions at this meeting in response to its dual mission, but it does not indicate that the Fed expects a recession

In a low interest rate environment, high-yield gold usually benefits, and concerns about economic recession often prompt investors to seek safety in gold.

The price of gold has surged significantly this year, with an increase of over 24%, repeatedly reaching new highs. Although emerging market demand, particularly from central banks, Asian consumers, and investors, supported the early 2024 rally, the focus in recent months has shifted entirely towards the Federal Reserve and the outlook for the US economy.

Wednesday's interest rate cut ended the turbulent period in the gold market, and some analysts pointed out that this will return to more traditional trading patterns, especially the long-term upward and downward trend of gold in the opposite direction of actual returns.

In recent years, this relationship has broken down, and despite soaring interest rates, gold prices remain at historic highs - supported by massive central bank purchases and soaring demand from Asian investors and consumers.