Fed Issues Stark Warning on Economy
Posted onThe Federal Reserve kept its key interest rate steady at 4.25-4.50% when it met on Wednesday. Nonetheless, Fed officials issued an unusually frank warning about what could lie ahead.
“Uncertainty about the economic outlook has increased further,” Fed officials said. “The committee… judges that the risk of higher unemployment and higher inflation have risen.”
How markets reactedÂ
Gold traded sideways following the Fed’s meeting, while stocks traded lower. Gold has climbed over 26% since the start of 2025 as world investors have piled into the safety of gold.
The trend for gold points higher with major banks projecting big gains ahead for the precious metal. In a new research note today, Bank of America said it sees growing potential for gold to hit $4,000 an ounce in the second half of this year because of global trade-induced geopolitical uncertainty.
Quick primer: How the Fed uses interest rate policyÂ
One of the main tools in the Fed’s toolbox is raising and lowering its key interest rate.
- Lowering interest rates helps boost an economy that is slowing down
- Raising interest rates helps tamp down inflation
The Fed’s dilemma Today, the Fed says the U.S. economy is staring at both of those risks ahead – the potential for economic slowdown or even a recession, and the risk that consumer prices and inflation could rise from the tariff policy. The U.S. economy is already slowing as first quarter Gross Domestic Product (GDP) growth declined by 0.3%.
What’s next? Stock investors are betting on interest rate cuts in the second half of 2025. By July, the CME FedWatch tool reveals that the market is pricing in 55% odds of a 0.25% interest rate cut.
Yet, the Fed is stuck between a rock and hard place, as economists worry that rate cuts could make inflation worse.
View from the Street on Economy and Stocks
In a new Barron’s Big Money poll, Wall Street money managers see risks for the stock market ahead.
- Sixty-five percent say the stock market will suffer a decline of 20% or more.
- Only 26% of money managers are bullish on the stock market over the next 12 months.
- Twenty-four percent say the biggest risk for the stock market over the next 6 months is an economic slowdown
- Nineteen percent say a recession is the biggest risk for the market over the next 6 months
Will You Act on the Fed’s Warning?
The Fed is warning of big economic risks ahead. Money managers are warning of a bear market in stocks this year. Is your portfolio positioned for what lies ahead? Central banks, pension funds, family offices and individual investors are turning to the safety of physical gold and silver. It’s easy to buy more portfolio protection with an increased allocation to gold. Why not do it today?
