The Federal Reserve is on the verge of making its third consecutive interest rate cut, while also suggesting a reduction in the anticipated cuts for the year 2025. This pivotal moment in monetary policy comes amid growing anticipation from investors who are eager to hear both the official policy statement and any insinuations from Chairman Jerome Powell regarding a pause in rate cuts, which has notably created a bearish sentiment surrounding gold.

On Thursday morning, Beijing time, the Federal Reserve will announce its last interest rate decision for the yearMany officials are expected to opt for a third consecutive reduction while indicating that future cuts next year may be less aggressive than previously forecastedSuch a shift is particularly significant considering recent economic resilience, which has outperformed the gloomy predictions made by officials a few months ago.

Recent economic data indicates a slower decline in inflation than the Fed had hoped for, and the labor market isn't exhibiting the signs of weakness that officials had feared

This unexpected strength could compel policymakers to revise their policy language in the statement to be released following the meeting and recalibrate their projected interest rate path.

Tim Duy, the Chief U.SEconomist at SGH Macro Advisors, highlighted the implications of surprisingly strong economic data, which raises questions about whether the neutral interest rate has indeed risenSuch uncertainty may provide even more justification for officials to moderate the pace of cuts“From the Federal Reserve's perspective, it makes sense to slow down actions when assessing their position in the policy cycle,” he asserted.

The decision on interest rates and the latest quarterly economic projections from Fed officials are scheduled for release at 3:00 AM Washington time, followed by a press conference with Powell thirty minutes laterThere, the broader economic implications and the reasoning behind these decisions will be thoroughly fleshed out.

Based on futures contracts, the market largely expects the Fed to lower the benchmark interest rate by 25 basis points this week; however, this decision is not universally welcomed

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A CNBC survey indicates that while 93% of respondents anticipate a rate cut, only 63% believe it is the correct action to takeNotably, former presidents of the Kansas City Fed and Boston Fed, Esther George and Eric Rosengren, have both expressed their preference against cutting rates at this meeting.

According to Anna Wong, Bloomberg’s Chief U.SEconomist, “The Fed staff have become highly competent at estimating based on CPI and PPI dataNovember’s core PCE, which will be released on December 20, is expected to show weakness, potentially leading some Fed officials to reluctantly embrace another rate cut due to inflation concerns.”

This prospective cut would lower the federal funds rate to a target range of 4.25% to 4.5%, a full percentage point below the levels from when the Fed began cutting rates in SeptemberStill, this benchmark remains significantly higher than the median projection of officials from September, when they estimated a long-term neutral rate of 2.9%. Recent communications from policymakers suggest that they may revise this rate higher in the new forecasts.

Data released in recent months shows that economic performance has exceeded officials’ expectations from the September meeting

Therefore, policymakers may elevate their outlook for economic conditions in the latest projections, anticipating higher inflation, a lower unemployment rate, and stronger economic growth.

The most significant aspect of the updated forecasts is likely to be the "dot plot," which illustrates the expected path of interest ratesAccording to a majority of economists surveyed by Bloomberg, the Federal Reserve is expected to lower rates three times next year, which is one reduction fewer than previously anticipated in SeptemberIn contrast, market expectations are more hawkish, with forecasts indicating only two rate cuts in 2025, according to the CME FedWatch tool.

Despite these projected cuts, it is crucial to note that any predictions may not fully account for the potential influence of U.SpoliciesMultiple Fed officials have indicated they are waiting for further details regarding tariffs and immigration policies before incorporating these elements into their forecasts on growth and inflation.

Fed officials may choose to retain the language from November’s statement, indicating that risks to the Fed’s goals for employment and inflation are “broadly balanced.” However, economists at Barclays suggest that policymakers may opt to adjust their phrasing to reflect expectations of a “gradual” rate reduction.

Additionally, Duy posits that another possibility is to refine the statement to suggest an openness to pausing rate cuts in the near future

He anticipates that following this week's cut, the Fed will hold rates steady in January, signaling this intention through adjusted language concerning the timing of any further changes.

During the subsequent press conference, Powell is likely to elaborate on how officials interpret the economic data and what it implies for future policy directionKey topics he might address include whether progress toward the 2% inflation target has stalled or if officials’ optimism regarding the labor market has strengthened since September.

Concerning future policy direction, he may face inquiries about the conditions under which rate cuts would be paused, as well as whether this pause might occur as soon as JanuaryInvestors will be keenly attentive to insights on how officials are setting the stage for future rate reductions.

Additionally, Powell will almost certainly encounter questions about how U.S

fiscal policy might affect monetary policyThus far, he and his colleagues have remained noncommittal on this front, citing the unpredictability of current rhetoric and future realitiesSome economists suggest that the incoming president's aggressive tariffs, tax cuts, and mass deportation plans may exacerbate inflation further.

Vincent Reinhart, Chief Economist at BNY Mellon and former director of the Fed’s Monetary Affairs division, remarked, “Clearly, the Federal Reserve finds itself in a quandaryOfficials cannot alter their forecasts to accommodate impending political and economic shifts unless they are highly certain about the forthcoming changes.”

He added, “The main concern during the press conference will revolve around the notion of bypassing a rate cutTherefore, I believe this will lean hawkishOnly once the policies are effectively enacted will the Fed likely update its forecasts accordingly.”

The price of gold, which has experienced volatility for several days, remains susceptible to the effects of the Fed’s policy statement, economic forecasts, and the language utilized during Powell’s briefing

Both the hawkish expectations surrounding the Fed’s rate cuts and technical analysis suggest a bearish outlook for gold.

Analyst Dhwani Mehta noted that daily charts point to gold prices once again slipping below the 21-day moving average, which stands at $2655. The 14-day relative strength index remains stagnant but below 50, indicating that bearish sentiments may still hold swayThe intraweek low of $2633 may provide some support; however, a breach of this support could lead gold prices to test the previously established low of $2613 on December 6. Below this threshold, bears may target the $2600 area— a point that coincides with the 100-day moving average and a previous low from November 26.

Conversely, on the upside, the immediate resistance for gold is positioned at $2655, the 21-day moving averageHowever, bullish traders will need to establish a foothold above the 50-day moving average to launch a meaningful attempt toward the $2700 mark before revisiting the multi-week high of $2726.