UBS’s view that further hikes remain likely this year points to continued support for the US dollar and real yields, a combination that raises the opportunity cost of holding gold and could see some of August’s ETF inflows unwind in the near term. Longer term, the bank argues gold’s investment case remains intact, underpinned by rising global debt, an expected weaker dollar and the prospect of rate cuts next year.
Other analysts framed the unanimous vote as evidence the Fed is taking a firmer stance against persistent inflation, much of it tied to elevated energy prices flowing from the conflict in the Middle East, with a further hike by year end widely seen as close to settled. Beyond that, views diverge sharply on how long above-target inflation could persist, with one long-term assessment suggesting price stability might not return for years given structural pressures from energy security, fiscal spending and the capital intensity of the AI investment cycle.
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The Fed hiked unanimously, but analysts can’t agree on how long this inflation fight will last.
Summary:
- The Federal Reserve raised its target rate range by 25 basis points to 3.75-4.0% on Wednesday under new Chair Kevin Warsh, with the FOMC voting unanimously for the first time in more than three years
- Sticky inflation, partly driven by rising energy prices, was cited as a key factor behind the move
- UBS Global Wealth Management said updated projections point to at least one more hike this year, which could keep the dollar and real yields elevated and pressure gold near term, though it still sees gold’s longer-term case intact given rising debt, an expected weaker dollar and likely rate cuts next year
- Other analysts described the hike as evidence the Fed has regained some resolve after a long period of caution, with a further hike by year end widely seen as close to certain
- One long-term view argued the US could see roughly eight years of above-target inflation before price stability returns, citing structural pressures from energy security, fiscal spending, supply-chain duplication and AI-related capital spending
- Several analysts noted the hike puts Warsh, seen as Trump’s pick for the role, in a delicate position, since his first major move as chair was a rate rise rather than the cuts he was expected to deliver
The Federal Reserve raised its target interest rate range by 25 basis points to 3.75 to 4.0% on Wednesday, in a decision made under new Chair Kevin Warsh and passed unanimously by the rate-setting committee for the first time in more than three years. Sticky inflation, with rising energy prices a significant contributor, was central to the central bank’s reasoning.
UBS Global Wealth Management said the Fed’s updated projections show most policymakers expect at least one further hike this year, a backdrop it believes could keep US real yields and the dollar elevated and raise the opportunity cost of holding gold, adding to near-term volatility for the metal. The bank noted gold exchange traded funds drew solid inflows in August amid concerns over Fed independence and rising debt levels, and said some of those holdings could reverse following what it called a hawkish hike. Even so, UBS argued the decision and the prospect of further tightening are already widely anticipated by markets and do not undermine gold’s longer-term investment case, pointing to rising global debt, an expected weaker dollar over time and likely Fed rate cuts next year as supportive factors, alongside elevated geopolitical uncertainty.
Other analysts characterised the unanimous vote as a sign the Fed has found firmer footing after a long stretch of caution, arguing the committee prioritised concerns about inflation’s drag on business decision making over arguments for standing pat. One long-term assessment suggested that if the Fed’s own forecasts prove accurate, the US could see roughly eight years of above-target inflation before price stability is restored, tying that outlook to structural shifts including geopolitical fragmentation, energy security concerns, larger government spending, supply-chain duplication and the capital intensity of the AI investment boom. That analyst noted Warsh’s press conference struck a similarly hawkish tone, with the new chair suggesting rates remain below neutral even after the increase, and said further tightening stays on the table unless resilient activity and elevated capital spending both ease.
Other commentary was more measured, framing the hike as a straightforward call given inflation has sat above the Fed’s 2% target for more than five years alongside a fully employed labour market, while cautioning that the outlook beyond this year is murkier given ongoing geopolitical and energy uncertainty out of the Persian Gulf. Several analysts also pointed to the position this places Warsh in personally, since he was brought into the role expected to deliver the rate cuts favoured by President Trump, yet his first significant decision was an increase, a dynamic some said could echo the friction Trump previously showed toward former Chair Jerome Powell. Those analysts said the Fed will likely want to see a sustained easing in Middle East tensions before looking past the current inflation spike, and that Warsh’s stated commitment to further work on inflation will eventually need to be matched with clarity on how long that work will take.
Federal Reserve Chair Warsh
This article was written by Eamonn Sheridan at investinglive.com.