Fed holds rates until September, gold range-bound for 3 months

The Federal Reserve will hold rates through September as the Iran war clouds inflation expectations, keeping gold range-bound for three to six months.

The Federal Reserve will hold its benchmark rate at 3.50% to 3.75% through at least September as the Iran war injects uncertainty into energy markets and inflation expectations, SIA Wealth Management said.

"The Fed will do its best not to make waves until September at the earliest," Colin Cieszynski, chief market strategist at SIA Wealth Management, said.

The central bank's two-day policy meeting begins Tuesday, with CME Group FedWatch data showing a 36% probability of a quarter-point hike — up from 16% a week ago. West Texas Intermediate crude fell 8.1% to $82.04 a barrel Monday after Iran agreed to pause strikes, though the situation remains fragile. The June Consumer Price Index showed headline inflation at 3.5% year over year, still above the Fed's 2% target, while core inflation slowed to 2.6%.

The hold scenario leaves gold prices range-bound for three to six months, Cieszynski said, as the Fed's inaction removes a potential catalyst for a breakout. The next policy decision falls on Sept. 15-16, giving markets a six-week window to assess whether inflation pressures from the Middle East recede or persist.

The Iran war has generated enormous swings in energy markets, with crude futures still up roughly 20% for July despite Monday's decline. The Strait of Hormuz, through which one-fifth of the world's oil travels daily, remains a flashpoint, and any setback in negotiations could quickly send prices higher, Capital.com senior market analyst Daniela Hathorn said. "Shipping risks through the Strait of Hormuz and continued disruption in the Red Sea mean energy markets remain vulnerable to fresh headlines," she added.

This supply-driven inflation poses a challenge for Fed Chair Kevin Warsh, who took office in May 2026 and has struck a hawkish tone, saying "prices are too high" and vowing to make elevated inflation "a thing of the past." Warsh has launched five task forces to examine Fed policy, including one focused on how the central bank measures inflation. He has advocated for a "trimmed averages" method that would have put the February PCE reading at 2.3% — a half-point below the headline figure. Despite his hawkish rhetoric, Warsh has also said he still views the Fed's 2% target as a good barometer.

The last time the Fed faced a comparable energy shock was the 2022 Russia-Ukraine conflict, when WTI crude surged above $120 a barrel and the Fed responded with a series of 75-basis-point rate hikes. This time, the central bank has kept rates steady since late 2025, when it lowered the fed funds rate to its current range after a series of cuts beginning in September 2024. The 2-year Treasury yield stood at 4.322% Monday, down nine basis points, while the 10-year yield settled at 4.647%, both near their highest levels since early 2025.

For gold, the lack of a clear policy signal from the Fed means prices are likely to remain range-bound until the fall or early 2027, Cieszynski said. The precious metal typically benefits from rate cuts, which reduce the opportunity cost of holding non-yielding assets, and from geopolitical turmoil, which drives safe-haven demand. But the competing forces — a hawkish Fed versus Middle East uncertainty — have created a stalemate that may persist for months.

The broader market is pricing a 64% probability that the Fed raises rates before 2027, according to Kalshi data. Northwestern Mutual Wealth Management chief investment officer Brent Schutte said he does not expect a rate hike this week but warned that rising costs of capital could pressure Big Tech companies that have increasingly turned to debt and equity markets to fund artificial intelligence investments. Alphabet said last week it increased its full-year capex budget to $205 billion and posted its first-ever quarter of negative free cash flow, while also announcing an $80 billion stock sale in June.

This article is for informational purposes only and does not constitute investment advice.