Fed’s Hawkish Pause Rocks Markets: Yields, Dollar Soar as Gold and Stocks Dive

What did the Fed do to shake the markets?

The Federal Reserve’s latest decision rattled global markets after it delivered a widely anticipated quarter-point rate cut but signaled fewer rate reductions for 2025. The central bank’s updated outlook projected just two rate cuts next year, a stark pullback from the four cuts forecast earlier. Fed Chair Jerome Powell reinforced a “cautious” stance, emphasizing the need for further progress on inflation before making additional cuts.

This hawkish tone triggered a sharp reaction: Treasury yields surged, pushing the 10-year yield above 4.50%, while the U.S. dollar spiked to a near four-week high. Equity markets, unprepared for fewer rate cuts, saw significant selloffs, and gold—traditionally sensitive to higher yields—suffered a steep decline.

How did markets respond?

U.S. Dollar Index (DXY): The dollar jumped 1.12%, reaching 108.13, as higher yields bolstered its appeal. This marked the dollar’s strongest performance in weeks. Resistance near 108 could be tested further if Fed hawkishness persists.

Equities: The Dow Jones Industrial Average tumbled 1,176 points or 2.67%, extending its historic losing streak to 10 days, its worst since 1974.

The S&P 500 fell 3.23%, while futures for major indices showed further weakness ahead. High valuations faced renewed pressure from higher borrowing costs and cautious Fed commentary.

Treasury Yields: The 10-year yield surged to 4.50%, reflecting investor concerns over persistent inflation and fewer rate cuts. Bonds sold off sharply as traders recalibrated for a more restrictive Fed policy through 2025.

Gold: Spot gold fell over 2% to around $2,590 per ounce, erasing gains from recent weeks. Non-yielding assets like gold lose appeal when Treasury yields rise and the dollar strengthens. A break below $2,600 indicates the next critical support lies near $2,546.

Silver: Prices dropped 3.71% to $29.40, mirroring gold’s decline. Further downside risks persist as rising real yields weigh on precious metals.

What’s next for markets?

Yields and Dollar: With the Fed signaling restraint on rate cuts, Treasury yields could stay elevated, potentially testing 4.60% on the 10-year note. A strong dollar will likely remain a headwind for commodities and emerging markets.

Stocks: Equities may face ongoing selling pressure as traders digest tighter monetary conditions. For the S&P 500, support at 5,900 is key, with downside risks toward 5,700 if bearish sentiment intensifies.

Gold and Silver: Precious metals face short-term headwinds, but underlying inflationary pressures and economic uncertainty could provide support. For gold, a sustained break below $2,590 could push prices to $2,546, while silver risks falling toward $27.71.

In summary, the Fed’s hawkish shift has amplified volatility across asset classes, with rising yields driving the dollar higher and risk assets lower. Traders should monitor upcoming inflation data and Fed commentary, which will determine if this trend continues or stabilizes.

More Information in our Economic Calendar.