August 19, 2026
The third part of this series focused on structural demand for gold from central banks. Today, in the fourth part, the spotlight is on one particular central bank: the US Federal Reserve. It currently finds itself in a monetary policy dilemma from which there is no real way out, and which is of considerable significance for gold.
A meeting marked by historically rare dissent
On 29 July 2026, the Fed’s Federal Open Market Committee left the key interest rate at 3.50 to 3.75 per cent. In itself, this decision was in line with market expectations. What was remarkable, however, was the voting result: with a 9–3 vote, the decision to hold rates steady was indeed clear-cut. Yet the President of the Cleveland Fed, Beth Hammack, the President of the Minneapolis Fed, Neel Kashkari, and the President of the Dallas Fed, Lorie Logan, each voted in favour of an immediate interest rate rise of 25 basis points.
Such a clear dissenting view on the interest rate decision is generally rather unusual within the committee and has, therefore, not occurred within the US Federal Reserve since 2016. Kevin Warsh, the new Fed Chair who chaired the meeting, thus finds himself facing a committee that is deeply divided on the issue of future interest rate policy.
This division is given added weight by the fact that, during the meeting, the Federal Reserve raised its own inflation forecast from 2.7 to 3.6 per cent. The so-called ‘dot plot’, in which individual central bankers record their interest rate expectations, is thus signalling a possible rate rise rather than a rate cut for the first time in quite some time.
Two opposing forces are at play
The crux of the current situation is this: whilst inflation trends would actually argue in favour of a tighter monetary policy, the economic data point in the opposite direction. Whatever the US central bankers ultimately decide, they are thereby bringing about a development whose negative side effects they cannot possibly want.
As described in the first part of this series, the US economy grew by just 1.5 per cent in the second quarter instead of the expected 2 per cent or so, and the July labour market report also came in weaker than hoped, with a fall in employment and an unemployment rate that had risen to 4.1 per cent.
An interest rate rise to combat inflation would place an additional strain on this already fragile economic situation. An interest rate cut to support the economy, on the other hand, would increase the risk of inflation becoming entrenched. For Kevin Warsh and the other central bank governors, the right decision may therefore feel a little like choosing between the plague and cholera.
Amid this complex mix of geopolitical risks – such as those relating to the Middle East and the resulting impact on oil and energy prices – as well as domestic political pressure on the central bank, the Fed finds itself effectively in a quandary. Any decision, one way or the other, carries significant risks, and the failure to set a clear course is interpreted by the market itself as a sign of uncertainty.
Why an indecisive Federal Reserve benefits gold
It is precisely this dilemma that is relevant to the price of gold. Historically, gold has benefited during periods when central banks have been navigating between conflicting objectives – such as price stability and promoting growth – and have consequently tended to act hesitantly rather than decisively.
If the US Federal Reserve remains inactive despite an increased inflation forecast, the likelihood grows that the real purchasing power of the US dollar will suffer in the medium term. It is precisely this prospect of a monetary policy that, when in doubt, is more accommodative than restrictive that supports demand for gold as a hedge against a potential loss of purchasing power.
The Federal Reserve’s next regular meeting in September is therefore likely to be followed with particular attention by the market. This is not only with regard to the interest rate decision itself, but also to whether the unusually high level of dissent within the committee continues or even intensifies.
The next instalment in this series will focus on a factor that further restricts the Federal Reserve’s scope for action in the long term: the explosive growth in US government debt. This, too, is of crucial importance for the valuation of gold and its current price.
