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In a hotly-anticipated announcement, the Federal Open Market Committee shaved its federal-funds target by another quarter point on December 10th, setting the range at 3.50 – 3.75 percent. Fed officials insist the U.S. economy is still expanding at a “moderate pace,” yet the same statement concedes that job gains have cooled and unemployment inched higher through September.
Inflation, the Fed admits, has “moved up since earlier in the year and remains somewhat elevated.” Markets heard the cautionary tone—and rushed instead to the monetary metal: spot gold spiked Wednesday to an intraday high of $4,231 per ounce, underscoring widespread doubts that a nibble at interest rates will tame rising prices.
Behind the headline move, the Fed tweaked its entire liquidity toolkit. Effective December 11th, the interest rate paid on reserve balances drops to 3.65 percent, and the primary-credit discount window slides to 3.75 percent. New York’s Open Market Desk is tasked with corralling the funds rate in the 3.50 – 3.75 percent corridor while offering daily overnight repos at 3.75 percent and reverse-repos at 3.50 percent, capped at a hefty $160 billion per counterparty. To keep “ample reserves” flowing, the Desk will keep buying short-dated Treasuries as needed, roll over all maturities, and plow mortgage-backed-security paydowns into yet more T-bills—a roundabout way of saying the balance sheet won’t be shrinking anytime soon.
Even so, labor worries crept front and center. The Committee judged that “downside risks to employment rose in recent months,” a stark shift from this year’s earlier celebration of a supposedly tight jobs market. Yet the statement also pledges to keep pushing inflation back to its 2 percent target—an objective the Fed has missed for too many months to count. For those schooled in Austrian economics, the promise sounds familiar: more credit today, hope for price stability tomorrow.
The vote itself laid bare a split in the FOMC. Nine members, including Chair Jerome Powell and Vice Chair John Williams, favored the 0.25-point cut. Stephen Miran dissented, arguing for a deeper 0.50-point slice, while Austan Goolsbee and Jeffrey Schmid preferred no change at all. Translation: nobody is quite sure how fragile the economy really is—or how sticky inflation may become—leaving policy to chase “incoming data, the evolving outlook, and the balance of risks.”
Wall Street’s verdict arrived in ounces, not rhetoric. Gold’s $37.4 intraday swing marked fresh record territory, even as nominal yields slipped. Whether the modest cut buoys growth or merely fans fresh price pressures remains to be seen. For now, the yellow metal’s ascent suggests Main Street isn’t betting on a quick return to 2 percent inflation—or on a painless path to it.
