At that meeting, FOMC members overwhelmingly voted to lower the federal funds rate by 25 basis points, to a new range of 4.5–4.75 percent, signaling further loosening of restrictive monetary policy.

The meeting summary indicated that officials are confident that inflation is moving sustainably toward the institution’s objective of 2 percent. The Fed could rapidly ease policy if there were sudden weakness in the labor market or the broader economy, the document said.

“In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes stated.

Meeting participants did express uncertainty regarding how low interest rates need to be before touching the neutral rate that neither stimulates economic activity nor halts growth.

“Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually,” the minutes said.

Looking ahead, Fed policymakers said that incoming data are consistent with the central bank’s 2 percent inflation target. They noted that higher shelter costs bolstered recent higher readings.

“Participants cited various factors likely to put continuing downward pressure on inflation, including waning business pricing power, the committee’s still-restrictive monetary policy stance, and well-anchored longer-term inflation expectations,” it added.

Fed Chair Jerome Powell told reporters at the post-meeting press conference earlier this month that the road to 2 percent inflation may be “bumpy” with more bumps in the road.

As for the U.S. economic landscape, participants concluded that downside risks to the labor market and wider economy decreased.

In addition, staff projected that economic conditions would remain solid and growth projections would be higher than in the previous assessment.

Tim Barkin, president of the Federal Reserve Bank of Richmond, recently expressed caution over the labor market but was optimistic about inflation.

“The labor market might be fine, or it might continue to weaken,” Barkin said in prepared remarks to the Baltimore Together Summit on Nov. 12.

“Inflation might be coming under control, or the level of core might give a signal that it risks getting stuck above target.”

Market Reaction

Financial markets registered tepid gains toward the closing bell on Nov. 26, with the leading benchmark indexes up by as much as 0.4 percent.

Yields in the U.S. Treasury market attempted to reverse the previous session’s sharp decline. The benchmark 10-year yield topped 4.3 percent. The two-year yield was flat at 2.5 percent, while the 30-year bond surged to 4.48 percent.

The greenback extended its gains. The U.S. dollar index, a gauge of the greenback against a basket of currencies, recorded a modest increase and added to its year-to-date rally of 5.6 percent.

Policy minutes did little to change the market’s assessment of next month’s outcome.

“The minutes did nothing to alter my view that the policy rate is going to be adjusted lower next week and will continue to do so through the next calendar year,” Jamie Cox, managing partner for the Harris Financial Group, said in a note emailed to The Epoch Times.

According to the CME FedWatch Tool, investors are mostly penciling in a quarter-point rate cut.

The rate-cutting cycle will persist throughout 2025, though Fed easing might not be as aggressive, says Jeffrey Roach, the chief economist at LPL Financial.

“In our view, after weeks of markets pricing in too many rate cuts throughout 2025, Fed rate cut pricing is now better aligned with economic data,” Roach said in a note emailed to The Epoch Times. “Currently, markets still expect the Fed to cut rates below 4 percent by the end of 2025.”

The FOMC will hold its next two-day policy meeting on Dec. 16–17.

Treasury International Capital (TIC) data published on Nov. 18 show foreign investors purchased $169 billion in U.S. government bonds in September, totaling a record $8.673 trillion.

Foreign investors bought a mix of short- and long-term bonds. Treasury bills—maturities between 30 days and 1 year—continue to appeal to bond investors, providing yields as high as 4.6 percent.

Japan and China, the two largest holders of U.S. debt, trimmed their holdings in September.

Tokyo erased about $6 billion, lowering its portfolio of Treasury securities to $1.123 trillion. Beijing reduced its holdings of U.S. government bonds by more than $2 billion to $772 billion.

While China has steadily decreased its exposure to Treasurys over the past several years, its holdings have changed little since September 2023.

Belgium ($41 billion), the United Kingdom ($21 billion), France ($16 billion), and Singapore ($9 billion) were the leading buyers, TIC figures show.

Hong Kong was the only other foreign market to register a nearly $3 billion decline.

The trend of foreign investment into U.S. Treasury securities has been unsurprising, given their vast demand at auctions over the last several months.

During the $42 billion auction of 10-year bonds on Nov. 5, indirect bidders—commonly foreign entities—purchased 62 percent of the supply. Direct bidders—domestic investors—bought less than a quarter of the issued bonds.

Foreign investors also acquired nearly two-thirds of the supply of 30-year bonds at the $25 billion auction on Nov. 6.

The yields in the United States bond market are some of the highest in the world. The U.S. Treasury market is also one of the largest and most liquid corners of international financial markets. Investors are hungry for yields with central banks unwinding their restrictive policy stances and launching a new easing cycle by cutting interest rates.

Despite the Federal Reserve following through on its rate-cut endeavors, Treasury securities have remained elevated. The benchmark 10-year Treasury yield, for example, has climbed nearly 80 basis points since the Fed lowered the federal funds rate for the first time in more than four years in September. As of Nov. 19, the 10-year bond is hovering at about 4.4 percent.

Treasury yield increases have also helped support the U.S. dollar.

The U.S. Dollar Index (DXY), a gauge of the greenback against a weighted basket of currencies, has surged nearly 2 percent over the past month, lifting its year-to-date gain to close to 5 percent. It also rallied to a one-year high of above 107.00 on Nov. 14.

The international reserve currency has rocketed on the futures market recently, shifting Fed policy expectations, with investors penciling only three quarter-point rate cuts by the end of next year, according to the CME FedWatch Tool.

“The potential for fewer cuts from the Fed and a more dovish ECB [European Central Bank] has been a big factor behind the dollar’s advance over the last few months,” said Adam Turnquist, the chief technical strategist at LPL Financial, in a note emailed to The Epoch Times.

Charles Seville, the senior director at Fitch Economics, believes the ECB will reduce interest rates faster amid weakening economic data.

“Although unemployment has yet to rise, labour markets are cooling and wage pressures subsiding,” Seville said in a research note last month.

“Past monetary tightening is clearly still affecting the economy. The ECB appears concerned that eurozone economic growth will undershoot its September forecasts, putting more downside pressure on inflation when it’s already close to target.”

The rate-setting Federal Open Market Committee will hold its next two-day policy meeting on Dec. 17 and 18.

The U.S. dollar’s future direction will also depend on Wall Street’s confidence that President-elect Donald Trump will extend the expiring Tax Cuts and Jobs Act and enact his sweeping tariff plans.

While a strengthening dollar benefits consumers and importers, it can also harm domestic companies that export their goods and services to foreign markets. The president-elect and his team have previously questioned the long-standing strong-dollar policy as they try to resurrect U.S. manufacturing.

“We have a big currency problem,” Trump told Bloomberg Businessweek this past summer, calling it a “tremendous burden” on U.S. businesses.

“Nobody wants to buy our product because it’s too expensive.”

However, Trump also pledged to protect the dollar hegemony and its chief reserve currency status, telling an audience of business leaders at the Economic Club of Chicago in October that the country could transition to “third-world status” if it the king dollar were dethroned.

Since the global financial crisis of 2008–09, central banks have been significant gold buyers, and their investments are paying off. These institutions are striking gold as prices have notched more than two dozen record settlements this year.

The metal has rallied about 30 percent in 2024, rising to as high as $2,708 per ounce. Its sister metal commodity, silver, has also performed well so far this year, surging 32 percent, to $32 an ounce.

Precious metal prices have rocketed on several factors.

Over the last 12 months, the U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, has slumped 3.5 percent. A weaker buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.

Despite its recent uptick, the benchmark 10-year Treasury yield has weakened by a full percent since November 2023 on Federal Reserve policy expectations. This has diminished the opportunity cost of holding non-yielding bullion.

Financial markets have witnessed an invasion of gold bugs, bulls that have ushered in precious metal euphoria to the trading floor of the New York Stock Exchange.

But central banks have ostensibly been ahead of the pack.

According to data compiled by the World Gold Council, central banks acquired 1,037 tons of gold last year, the second-highest annual purchase in history. This came one year after the institutions purchased a record high of 1,082 tons.

In August, central banks reported net purchases of eight tons, led by the National Bank of Poland, the Central Bank of the Republic of Turkey, and the Reserve Bank of Turkey.

But while central-bank purchases have significantly increased over the last three years, this has been a long-term trend, says Joseph Cavatoni, a senior market strategist at the World Gold Council.

“It’s a 14-year trend that’s basically been playing out since the global financial crisis,” Cavatoni told The Epoch Times.

“[There] has been a real desire to diversify their holdings and add the component of gold to the portfolio to achieve a better performance outcome.”

Though purchasing sizes have slowed recently, central banks anticipate adding more gold to their reserves in the coming years.

A 2024 World Gold Council survey showed that 81 percent of central banks will increase their gold holdings over the next 12 months. Looking ahead to the next five years, 66 percent of central banks think gold’s share of their overall reserves will be “moderately higher.”

In today’s “increasingly uncertain global economic environment,” the trends make sense, says Matthew Jones, a precious metals analyst at Solomon Global.

“Central banks are increasing their gold purchases as a strategy to diversify reserves, hedge against inflation, protect themselves from geopolitical risks, and reduce reliance on the U.S. dollar,” Jones told The Epoch Times. “Gold’s historical role as a stable and universally accepted asset makes it an attractive option, especially in an increasingly uncertain global economic environment.”

The U.S. dollar hegemony might play a vital role in central banks’ ferocious gold appetite.

Gold in a Reforming Global Monetary Order

Changes to the international monetary order have been unfolding, with central banks gradually transitioning away from the U.S. dollar.

According to the International Monetary Fund’s Currency Composition of Official Foreign Exchange Reserves data, the U.S. dollar share of worldwide foreign-exchange reserves is 58 percent, down from 72 percent in 2000.

“Recent data from the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) point to an ongoing gradual decline in the dollar’s share of allocated foreign reserves of central banks and governments,” IMF officials said in a report this past summer. “Strikingly, the reduced role of the U.S. dollar over the last two decades has not been matched by increases in the shares of the other ‘big four’ currencies—the euro, yen, and pound.”

Like gold-buying, the de-dollarization campaign has been ongoing since the Great Recession, kicking into overdrive after the outbreak of the war in Ukraine. This initiative involves countries trimming their reliance on the greenback as a reserve currency.

Leaders have been responding to the potential dollar weaponization, says Vijay Singh, the managing partner and chief investment officer at Regal Point Capital.

After the postwar Bretton Woods conference, the U.S. dollar essentially became the world reserve currency, pegging every other currency to the buck. As a result, the federal government has exploited the U.S. dollar as a tool to bolster Washington’s foreign policy, which was on full display after Russia’s invasion of Ukraine.

The U.S.-led Western alliance froze about half of the Russian central bank’s more than $600 billion in assets. It limited the Kremlin’s access to the SWIFT (Society for Worldwide Interbank Financial Telecommunications) payment system, the financial artery for financial communication.

JPMorgan Chase CEO Jamie Dimon warned that cutting Russia out of SWIFT would trigger “unintended consequences.”

“I don’t think anybody likes to be bullied,” Singh told The Epoch Times. “If you look at a lot of our foreign policy, it does involve kind of using the dollar strength globally against countries that they’re not going to forget.”

Singh says several formal efforts are underway to sidestep the U.S. dollar, including expanding the coalition of anti-dollar developing nations known as the BRICS (Brazil, Russia, India, China, and South Africa).

In August 2023, the group officially invited six other nations to join the bloc: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE), though Saudi Arabia has still yet to join. Nineteen other countries have expressed interest in becoming members.

“We value the interest of other countries in building a partnership with BRICS,” South African President Cyril Ramaphosa said in a statement. “We have tasked our foreign ministers to further develop the BRICS partner country model and a list of prospective partner countries and report by the next Summit.”

A part of the organization’s objective is to bolster bilateral trade settled in local currencies, such as the Chinese yuan, the Brazilian real, and the Indian rupee.

In the last year, many media reports have shown that countries are creating arrangements to complete bilateral trade in local currencies.

Iran and Russia finalized an agreement in December to trade in their local currencies rather than the U.S. dollar, according to Tehran’s state media. Russian Deputy Prime Minister Alexei Overchuk confirmed this past spring that 92 percent of trade settlements between Moscow and Beijing are conducted in rubles and yuan. India and Indonesia inked a deal in March to trade in local currencies.

Over the years, rampant speculation has been that BRICS members would establish a gold-backed reserve currency. To date, nothing has materialized, and experts are skeptical that it will happen anytime soon.

While discussions are likely occurring, “it’s really not a quick” fix to displace the U.S. dollar, according to Cavatoni.

“It’s quite a bit of work to get that done,” he said.

“I think there’s still the necessity for dollars to be in the middle of the mix, and there’s not a lot of viable alternatives to start a new currency, to get something that’s completely independent, to have it embedded in clearing and have it embedded in trade settlements.”

While gold is a politically acceptable instrument to nations outside the Western alliance, there are broader challenges, say State Street economists.

“Gold reserves are simply not ‘user-friendly’ in large quantities,” they wrote in a paper. “Gold needs to be stored domestically and requires an international transaction to convert it into foreign currency for payment purposes.”

“In brief,” they concluded, “gold performs well on safety but falls short on liquidity.”

A more realistic proposal would be tying gold to a stablecoin, Vingh says. This would consist of a cryptocurrency in which the digital asset’s value is pegged to a reference asset, such as the U.S. dollar or gold.

“I think that’s actually more workable, and what they might do,” he stated. “There’s so much flexibility involved with these stablecoins, theoretically.”

The next BRICS Summit later this month will take place in Kazan, Russia, and might rekindle murmurs about de-dollarization and a gold-backed currency.

Gold Prices in 2025

Will gold extend its record run into 2025? Financial experts agree that worldwide markets should brace for elevated prices.

Goldman Sachs Research forecasters prognosticate that gold should hover around $2,700 by early next year, “buoyed by interest rate cuts by the Federal Reserve and gold purchases by emerging market central banks.”
“The metal could get an additional boost if the U.S. imposes new financial sanctions or if concerns mount about the U.S. debt burden,” they said.

“Gold is our strategists’ preferred near-term long (the commodity they most expect to go up in the short term), and it’s also their preferred hedge against geopolitical and financial risks.”

Jones believes gold investors will “enjoy this current bull” entering 2025 and target a spot value approaching $2,800 in early 2025.

Supporting factors will be the same as they have been over the last couple of years.

“I think we will enjoy this current bull run as we enter into 2025 driven by: continued demand from central banks (in particular the central banks from the BRICS nations as they reduce their reliance on the U.S. dollar), persistent or increasing inflation, geopolitical uncertainty (a soft euphemism for war), currency diversification, and the risk of an economic slowdown or recession,” Jones noted.

According to Bureau of Labor Statistics data, cumulative inflation since 2019 has totaled nearly 25 percent.

But inflation figures have been understated by nearly half, resulting in cumulative growth to be “overstated by roughly 15%,” say economists EJ Antoni and Peter St. Onge.

“Moreover, these adjustments indicate that the American economy has actually been in recession since 2022,” they wrote in a new study published in Brownstone Journal.

Undercounting inflation has implications for economic growth because rapid price changes have bolstered the nominal values of a wide array of economic metrics “without resulting in any real change.”

Antoni and St. Onge cited several data points comparing nominal (non-inflation-adjusted) and real (inflation-adjusted) since January 2019.

New orders for durable goods have increased 7.5 percent (nominal) but fallen 13.4 percent (real). Retail sales have rocketed more than 23 percent (nominal) but rose 3.2 percent after adjusting for inflation. Nominal disposable personal income has surged about 35 percent, but the real rate has been just nearly 13 percent.

Nominal GDP at a seasonally adjusted annualized rate shows the national economy has soared 37.4 percent from the first quarter of 2019 to the second quarter of 2024.

The Bureau of Economic Analysis (BEA) uses the GDP Price Deflator—a tool that reduces the value of goods and services produced in the wider economy—to reflect inflation revisions. When it is applied, nominal growth declines to 13.7 percent in this five-year span.

But this is flawed, the economists stated.

“Utilizing a modified GDP deflator that includes more accurate metrics for housing, regulatory costs, and indirect costs yields a more accurate inflation measurement and therefore a more accurate valuation of real GDP,” the paper said.

Antoni and St. Onge concluded that the adjusted real GDP fell 2.5 percent from the first quarter of 2019 to the second quarter of 2024 and entered a recession in early 2022.

“Even without considering population growth and per capita GDP, the adjusted real GDP values imply that the nation entered a recession in the first quarter of 2022 and remained in that contraction through the second quarter of 2024,” they wrote.

‘Egregious Biases’ in Inflation Data

The paper aimed to address various “egregious biases in inflation statistics” to gauge an accurate assessment of inflation over the last five years.

“This matters not only because of the political salience of rising prices, but also because official inflation numbers are used to calculate real economic growth by adjusting nominal dollars to inflation-adjusted dollars,” the economists wrote.

Antoni and St. Onge noted that government inflation measurements have many shortcomings, from housing to health insurance.

U.S. home prices have accelerated to all-time highs since the pandemic, surpassing rents in the same span.

“The CPI has grossly underestimated housing cost inflation,” they wrote, highlighting that the consumer price index (CPI) fails to “actually account” for the direct cost of homeownership. Instead, federal statisticians rely on the “owners’ equivalent rent of residences,” which accounts for more than 26 percent of the CPI.

“If the costs to rent and own change commensurately over time, then this methodology will be relatively accurate,” the economists stated. “Unfortunately, the cost of owning a home has risen much faster than rents over the last four years and the CPI has grossly underestimated housing cost inflation.”

In 1983, the federal government changed its CPI inflation calculations by transitioning from tracking mortgages and housing costs to monitoring “owners’ equivalent rent.” The objective behind the modification was that the measurement would be less volatile, and officials viewed housing as an investment.

In the August CPI report, this category jumped 0.5 percent monthly and 5.4 percent year-over-year.
Measuring price changes when consumers are not directly charged for services is another challenge to accurately measuring inflation.

Health insurance is one example of this hurdle to correctly assessing inflation.

“Premiums are used both to pay for the actual cost of providing the service of insurance (risk mitigation) and for medical services and commodities,” the report said. “The CPI neglects both, and instead imputes the cost of health insurance from the profits of health insurers.”

Last month, the health insurance component of the CPI was little changed monthly and rose 3.3 percent from a year ago.

Quantifying the effects of government regulations can also be a roadblock to better understanding inflation because statistics agencies will determine prices are lower if products have improved.

“The difficulty of estimating such improvements can result in artificial cost reductions due to perceived benefits to the consumer that do not actually exist,” they said.

Solid Growth, Low Inflation Ahead: Forecasters

The U.S. government recently reported that the economy grew faster than initially reported in 2023.

The Bureau of Economic Analysis released its annual benchmark revision report last month. The changes confirmed that the GDP growth rate was 2.9 percent last year, up from the previous estimate of 2.5 percent. Additionally, growth in 2022 was revised higher by 0.6 percentage points to 2.5 percent.

Higher corporate profits, consumer spending, and business investment drove adjustments.

The first-half recession in 2022 was also canceled as the year’s second-quarter growth rate was revised higher to 0.3 percent from negative 0.4 percent.

Forecasters anticipate strong economic growth and low inflation for the rest of the year.

According to the Federal Reserve Bank of Atlanta’s GDPNow forecasting model’s estimate, the U.S. economy is expected to expand by 3.2 percent in the third quarter. The New York Fed Staff Nowcast shows comparable growth projections.

The Cleveland Fed’s Inflation Nowcasting suggests the annual inflation will ease to 2.3 percent in the next CPI report.