Federal Reserve officials emphasize that the September rate cut is a preventive measure and approach further actions with caution

After the Federal Reserve's first interest rate cut of the year, several officials expressed their views on the future policy path in public. Meanwhile, global risk aversion and a surge in central bank gold purchases have driven gold prices to record highs.

According to Zhitong Finance APP, on Monday, St. Louis Fed President James Bullard stated at an event at the Brookings Institution in Washington that he supported last week's 25 basis point rate cut mainly for "preventive reasons" to prevent further deterioration of the U.S. labor market. However, he emphasized that the current interest rate level is "slightly between tight and neutral," and there is limited room for further rate cuts in the future.

Bullard noted, "If there are more signs of weakness in the labor market, I would support further rate cuts, provided that the risks of inflation exceeding the target have not increased and long-term inflation expectations remain stable." He also emphasized that although the direct impact of tariffs on prices is lower than expected, factors such as slowing labor supply growth may still push inflation higher, so monetary policy must remain "vigilant against inflation above the target."

At the Fed's September meeting, the Federal Open Market Committee (FOMC) voted 11 to 1 to cut rates by 25 basis points, marking the first rate cut for 2025. However, the dot plot shows increasing policy divergence: 7 officials expect no further rate cuts this year, while 10 officials believe there will be at least 50 basis points of cuts remaining this year, and another 2 expect only one 25 basis point cut.

On the same day, Atlanta Fed President Raphael Bostic stated in an interview that he currently does not support further rate cuts because "inflation has remained at excessively high levels for a long time." Bostic said, "I would not support another rate cut, but we will continue to monitor economic conditions."

Bullard pointed out that the strong performance of the U.S. stock market and low credit spreads are supporting the economy, which means monetary policy needs to be more cautious. He also stated that interest rates are currently close to neutral levels, which neither stimulate nor suppress economic growth.

The complex situation facing the Fed is that signs of cooling in the labor market are increasing, but inflation has not stabilized back to the 2% target. Recently, the slowdown in U.S. job growth has raised market concerns about a recession, while factors such as tariff policies and changes in labor supply may still drive price pressures upward.

Against the backdrop of increasing global macro uncertainty, gold prices continue to rise. On Monday, international gold prices reached $3,728 per ounce, setting a new historical high, and prices have doubled since the end of 2022.

Industry insiders say that the surge in global central bank gold purchases and investment demand is the core driving force behind the continuous rise in gold prices. According to data from consulting firm Metals Focus, since 2022, the net amount of gold purchased by global central banks has exceeded 1,000 tons annually, and it is expected to reach 900 tons this year, about twice the average level from 2016 to 2021. Central banks are making large-scale gold purchases mainly for "de-dollarization" considerations, especially after Western countries froze Russia's foreign exchange reserves in 2022, prompting developing countries to seek to diversify their foreign exchange reserve risks.

Gold ETFs have also become an important source of demand. Data from the World Gold Council (WGC) shows that net inflows into gold ETFs reached 397 tons in the first half of this year, the highest for the same period since 2020, with global gold ETF holdings reaching 3,615.9 tons by the end of June, the highest level since August 2022 Metals Focus expects that the net inflow of gold ETFs in 2025 will reach 500 tons, reversing the net outflow of 7 tons in 2024.

Due to high gold prices, global demand for gold jewelry has seen a significant decline. According to WGC data, jewelry demand in the second quarter of 2025 fell to 341 tons, a year-on-year decrease of 14%, marking the lowest level since the pandemic hit in 2020. Notably, the demand share from the Chinese and Indian markets has fallen below 50% for the first time in five years. Metals Focus predicts that global gold jewelry production will significantly decrease by 16% in 2025.

However, demand for investment-grade physical gold remains strong. Gold bar purchases are expected to increase by 10% in 2024, despite a 31% decline in coin purchases, overall retail investment demand remains high. It is anticipated that net physical investment will grow by 2% to 1,218 tons in 2025, particularly as purchasing power in the Asian market continues to be robust