Rate cuts loom, debt piles up, gold shines brighter than ever

The Federal Reserve looks ready to move on another rate cut, with markets widely expecting a 25-basis-point reduction at its upcoming meeting. Policymakers have been signalling for weeks that conditions are shifting toward looser monetary policy, though the backdrop is far from straightforward. Inflation remains uncomfortably close to the Fed’s upper tolerance, while consumer spending patterns are raising red flags for stability.

Fresh data has shown just how mixed the picture is. The Empire State Manufacturing Survey collapsed back into negative territory this month, underlining the headwinds faced by U.S. manufacturers. Business sentiment has weakened sharply, with demand softening and firms struggling to manage costs. The reading points to an industrial sector still under pressure, even as broader growth metrics have held up.

Meanwhile, U.S. households are leaning harder on credit to maintain spending. Consumer credit jumped to US$16 billion for the month, well above the prior print of US$9.6 billion. Credit providers are enjoying the windfall, but for policymakers the sharp rise highlights the risks of households running up debt to keep pace with costs. That dynamic complicates the Fed’s task: cut too deeply and it may fuel an unhealthy credit binge, but stand still and it risks choking off already fragile growth.

Amid the uncertainty, gold continues to tell its own story. Prices surged to yet another all-time high today, hitting US$3,684 an ounce. The metal’s extraordinary rally reflects both safe-haven demand and the market’s growing scepticism about the durability of U.S. economic growth. Traders are betting that with rate cuts back on the table and consumers showing signs of strain, gold will remain the hedge of choice.

The coming weeks will be pivotal, with investors weighing whether the Fed can navigate between stabilising the economy and avoiding the unintended consequences of looser policy.