Gold Surges as Powell Signals Potential Policy Shift
Tuesday, August 26th 2025
Gold prices jumped sharply after Federal Reserve Chair Jerome Powell hinted that a change in U.S. monetary policy might be on the horizon. The markets reacted quickly, interpreting his comments as groundwork for a potential rate cut next month.
Powell delivered a carefully balanced speech at this year’s Federal Reserve symposium, acknowledging both rising inflation risks and slowing economic growth. While he emphasized that the economy has shown resilience, he also suggested that the Fed may need to adjust its stance in the near term.
“Risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation,” Powell said. “Our policy rate is now 100 basis points closer to neutral than it was a year ago. Nonetheless, the baseline outlook and shifting balance of risks may warrant adjusting our policy stance.”
Following the speech, spot gold rose 0.5%, reaching $3,353.60 per ounce as investors digested the potential for looser monetary policy.
Labor Market Pressures
A key focus of Powell’s remarks was the labor market. While employment remains stable, recent data has highlighted growing vulnerabilities. July’s disappointing job figures, combined with downward revisions in May and June, signal that downside risks to employment are increasing.
“This unusual balance—slowing demand and supply for workers—suggests that risks to employment could materialize quickly, with layoffs rising sharply,” Powell explained.
Economists note that Powell has been closely monitoring the labor market, which has been a primary reason for the Fed’s cautious approach to cutting rates. However, the evolving risks now give policymakers reason to reconsider.
Inflation Remains a Concern
Powell also addressed inflation, particularly the effects of higher import tariffs on consumer prices. He warned that while the immediate impact might be short-lived, the effects will ripple through supply chains over time.
“A one-time shift in the price level is expected, but ongoing tariff adjustments could prolong the process. We cannot take the stability of inflation expectations for granted,” Powell said.
Market Response and Expectations
Analysts note that markets quickly priced in a rate cut for next month, reflecting investor optimism that the Fed may act to support the economy. According to the CME FedWatch Tool, traders are also anticipating at least one additional cut before the end of the year.
The gold rally underscores its traditional role as a hedge during periods of uncertainty. With policy adjustments potentially on the way, analysts suggest that gold may continue to benefit in the near term.
