Fed Holds Rates Steady as Gold Hits Record, S&P 500 Breaches 7,000
Two governors dissent favoring quarter-point cuts as precious metal surges past $5,300 per ounce
The Federal Reserve held interest rates steady at 3.5% to 3.75% on Wednesday, but the decision revealed growing internal divisions as two governors dissented in favor of immediate rate cuts. The announcement came as gold surged to record highs, surpassing $5,305 per ounce and touching $5,311, while the S&P 500 briefly breached the 7,000 milestone before reversing course.
The vote was 7-2, with Stephen I. Miran and Christopher J. Waller both favoring a quarter-point reduction. The split reflects intensifying debate within the central bank about whether policy remains restrictive enough to cool an economy that Chair Jerome Powell said entered 2026 on a "firm footing." The Federal Open Market Committee, in its official statement, said inflation remains "somewhat elevated" but offered no direct reference to tariff pressures that have worried markets.
The rate decision marks the first policy announcement of 2026 and comes after three consecutive rate cuts that concluded 2025. Most economists had expected the Fed to maintain its current stance, adopting a wait-and-see approach to assess the impact of those earlier reductions. The removal of language about "downside risks to employment" in Wednesday's statement signaled modestly greater confidence in the labor market, where the committee noted job gains have remained low but unemployment has shown signs of stabilization.
Gold's surge to $5,311 per ounce represents a new all-time high for the precious metal, driven in part by a sharp decline in the US dollar to its lowest level in nearly four years. The SPDR Gold Shares ETF (GLD) closed at a record $475.60 on Tuesday, with its relative strength index at 75.82, indicating overbought conditions that could signal near-term volatility. The metal's rally reflects investor positioning for potentially lower rates ahead, as well as broader geopolitical concerns and policy uncertainties.
Equity markets showed initial optimism before reversing. The S&P 500 briefly climbed above 7,000, a psychological milestone that underscores the market's extended rally, but the index turned lower as Powell's press conference progressed. The Fed chair said there remains "some tension" between the central bank's inflation and employment goals, suggesting policymakers see no immediate need for either cuts or hikes.
The dissent from Miran and Waller carries particular weight given the Fed's tradition of consensus governance. Both officials argued that economic conditions warranted an immediate quarter-point reduction, suggesting growing concern that maintaining current rates could unnecessarily slow economic growth. Their position aligns with recent data showing softening inflation metrics alongside resilient consumer spending.
Looking ahead, traders will focus on upcoming economic data, particularly inflation readings and employment reports, for clues about the timing of potential rate adjustments. The Fed's next scheduled meeting is in March, though the central bank retains flexibility to act between meetings if economic conditions warrant. Powell emphasized that the committee remains "strongly committed" to returning inflation to its 2% objective, even as it assesses whether the current policy stance appropriately supports maximum employment.