The Federal Reserve left interest rates unchanged at 3.75–4.00% on October 28. But the decision was not unanimous.
According to the official Fed statement, ten policymakers voted to hold rates, while Lisa Cook and Beth Hammack wanted another 25-basis-point increase.
Meanwhile, Reuters reported that futures markets were pricing in approximately an 84% probability of a December rate hike before today’s decision.
Think about that.
Gold has already suffered a substantial correction. Yet traders were still preparing for tighter monetary policy, even as most Fed officials voted against an immediate increase.
There is an important distinction between those two numbers.
The 10–2 vote tells us what policymakers decided today. The 84% figure reflects what futures traders expected for December. It is not a measure of how many Fed officials support another hike, nor is it a promise that one will happen.
In September, the Fed unanimously approved a quarter-point increase. October’s divided decision shows that policymakers do not all agree on whether further tightening should happen immediately.
But voting to wait in October does not rule out supporting a hike in December.
For gold, the implications go beyond the next entry in the Fed’s interest-rate history.
When investors already assign such a high probability to tighter policy, much of that expectation may be reflected in bond prices and the dollar.
Another increase could still hurt gold, particularly if real Treasury yields rise further. But the market’s reaction will depend partly on how the decision compares with expectations at that time.
Now consider the opposite scenario.
What happens if incoming inflation and economic data make a December hike look considerably less likely?
Traders could start unwinding expectations of tighter policy before the Fed actually changes anything. Lower expected rates could reduce the competition gold faces from interest-bearing assets, although that would not guarantee a rally.
We would not treat today’s pause as a bullish signal by itself. The Fed continues to describe inflation as elevated, and its next decision remains uncertain.
But after gold’s recent correction, the direction of those expectations deserves close attention.
The Fed didn’t raise rates today. The market was already looking toward December. And that leaves plenty of room for the next surprise to come from a change in expectations rather than the rate decision itself.
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