By Daniela Hathorn, senior market analyst at Capital.com
Markets are treading cautiously on Wednesday as attention turns to the Federal Reserve decision due later in the day. The CME FedWatch tool shows the probability of a 25bps rate cut at around 90%, indicating strong market conviction that the central bank will continue easing policy—despite Powell’s earlier attempts to temper expectations.
Given how fully priced in this move is, the market reaction to a standard 25bps cut may be muted. Instead, the tone of the communication and the updated economic projections will be the real market drivers. A cut is a cut—but what matters now is why the Fed is cutting, and what Powell signals about the path ahead.
A hawkish cut, where Powell emphasises concern about inflation’s trajectory and pushes back against expectations of aggressive easing in 2026, would have a markedly different market impact than a dovish cut, where softening labour-market conditions dominate the narrative and further rate reductions remain on the table.
The details will matter. Markets will look closely at where FOMC participants project the policy rate to be by December 2026, and whether those projections have shifted from September. The vote split will also be key—how many members dissent, and whether those dissenters argue for holding rates steady or for cutting more aggressively.
Summary of Economic Projections from the September 2025 meeting
Source: federalreserve.gov
Gold: Poised for a Breakout or a Pullback
Gold has traded broadly flat over the past week as investors position ahead of the Fed announcement. A dovish outcome could reinforce expectations for lower rates into 2026—potentially bringing the policy rate closer to 3% by year-end—and may provide the catalyst for XAU/USD to decisively break above the $4,250 resistance zone, which has capped prices in recent weeks. A breakout would shift focus toward the all-time highs above $4,380, though momentum indicators such as the RSI may begin to approach overbought levels depending on the strength of the move.
Conversely, a more hawkish tone from the Fed could weigh on gold, deepening the current consolidation and pulling XAU/USD back toward the $4,000 support area, which remains a critical level for bullish trend structure.
Gold (XAU/USD) daily chart
Past performance is not a reliable indicator of future results.
