Federal Reserve Maintains Rates as Economic Conditions Soften
The Empire State Manufacturing Survey posted a sharp deterioration in June, falling to -16 and marking the sixth consecutive month of negative readings. This result reflects sustained contraction in manufacturing activity within New York state and adds to growing evidence of a broader industrial slowdown in the United States. Businesses surveyed reported declines in new orders, shipments, and employment, reinforcing concerns about a cooling economic environment.
Simultaneously, US retail sales fell by 0.9% in the latest monthly reading, a figure that surprised many analysts expecting a more modest decline. The result points to ongoing strain on household budgets, likely driven by persistently high interest rates and elevated cost-of-living pressures. Consumer confidence has also weakened in recent weeks, which may weigh further on discretionary spending moving into the second half of the year.
Despite these softening indicators, the Federal Reserve has elected to hold the federal funds rate steady within the 4.25% to 4.50% range. The decision underscores the Fed’s cautious approach, balancing concerns over persistent inflation with signs of economic fatigue. While some market participants had anticipated more aggressive easing, the central bank reiterated its data-dependent strategy, suggesting that further rate cuts are unlikely until inflation shows sustained downward momentum.
Former President Donald Trump has continued to advocate for immediate rate reductions to boost economic momentum, but the Fed’s decision signals a clear divergence from politically driven demands in favour of measured policy based on core economic fundamentals.
On the geopolitical front, global markets remain on edge as Trump confirmed he would make a decision regarding potential US intervention in the escalating conflict between Israel and Iran within the next two weeks. Any direct involvement by the United States would significantly heighten regional instability. Of particular concern is the growing speculation around targeted strikes on Iran’s nuclear infrastructure, which could result in radioactive fallout. Experts have warned of severe environmental consequences, including the contamination of shared water supplies across neighbouring countries, should nuclear sites be damaged.
This combination of economic uncertainty and geopolitical risk has continued to bolster support for gold, which remains firmly positioned above both its 50-day and 200-day moving averages. The metal's resilience reflects investor appetite for safe-haven assets in times of elevated volatility and risk. With inflation still a concern and rate movements uncertain, gold continues to serve as a hedge against both currency debasement and systemic shocks.
Market participants are closely monitoring developments on both the economic and geopolitical fronts, with gold expected to remain well-supported should current conditions persist or escalate further.
