Markets Price Out Half-Point Fed Rate Hike, Gold Barely Reacts

A Federal Reserve governor on Thursday significantly reduced the market’s chances of a September interest-rate increase. Conventional wisdom suggests that lower odds of hikes should boost gold, yet the metal largely traded sideways through the session.

As of 1:15 p.m. ET on Thursday, September 3, gold was trading near $4,488 per ounce, up about 2.3% for the day. Silver was near $67.07, roughly 2.7% higher. Live price charts showed both metals had moved higher earlier in the session but stalled after midday.

Timing played a key role in the market’s muted reaction. Gold had already climbed roughly 2.4% by 9:00 a.m. ET—before Governor Christopher Waller spoke at 9:26. After his remarks, gold retreated about $28 by 10:00 a.m. and remained below the level reached before Waller’s comments. The metal also sat roughly 3.5% below its late‑August peak near $4,659 per ounce.

What exactly did Christopher Waller say?

Governor Waller said he would support leaving the federal funds rate unchanged at 3.50%–3.75% when the Federal Open Market Committee meets on September 15–16, provided incoming data continue to show disinflation. In short, he argued the committee could afford to “wait one meeting” if inflation keeps cooling.

Speaking at a Reuters NEXT Newsmaker Interview in Washington, he urged markets to “give disinflation a chance.” He highlighted a specific measure—core inflation over the most recent three months excluding food and energy—as particularly encouraging.

Waller did leave room to change his view. He described policy as only mildly restrictive for aggregate demand and warned that a renewed acceleration in inflation could prompt him to support tightening again.

Why did gold not rally on a dovish Fed governor?

The conventional interest-rate channel moved lower: market-implied odds of a September hike dropped about 13 percentage points to roughly a 50/50 chance, according to CME Group’s FedWatch tool, and Treasury yields fell to session lows. In theory, that should be supportive for gold, since the metal carries no yield and becomes relatively more attractive as expected returns on cash and Treasuries decline.

In practice, another factor had already driven gold’s earlier gains: geopolitical sentiment. Gold rose overnight after comments from President Trump suggesting a recent strike on Iran would be limited, a signal traders interpreted as meaning any escalation might be short‑lived. That geopolitical bid dominated the later rate-driven move, and once markets absorbed Waller’s comments, gold settled back.

How divided is the Fed heading into September?

The Fed appears genuinely split, which helps explain why markets stopped short of fully pricing out a hike. At the July 28–29 meeting, the FOMC voted 9–3 to hold rates, with three regional bank presidents dissenting in favor of a 25 basis point raise—an unusual level of disagreement not seen in several years.

Economists outside the Fed are also divided. Some forecasters view September as essentially a coin flip, while others expect the committee to hold if incoming data remain benign. That division makes it harder for markets to settle on a single expectation ahead of the next meeting.

What does Waller’s disinflation evidence actually show?

Waller highlighted the three‑month core PCE measure that excludes food and energy. That three‑month annualized pace fell to 3.05% through July from about 4.76% in February, a marked slowdown that he described as encouraging and the clearest evidence of disinflation in recent months.

At the same time, the 12‑month figures are less flattering: headline PCE rose 3.7% year‑over‑year and core PCE rose 3.3% over twelve months. Waller cautioned that annual rates are a lagging guide and argued that the three‑month measure better captures the current trend. Still, he noted inflation has exceeded the Fed’s 2% target for more than five years, which tempers enthusiasm about a single meeting’s data.

What could break the dovish case?

Energy prices are the primary upside risk Waller himself cited. He said tariff effects have mostly passed through and that earlier worries about energy bleeding into broader inflation had not yet materialized, but he still singled out energy as the biggest threat to the disinflation narrative.

Evidence against the dovish case showed up in the August services data: the ISM services index rose to 55.4 from 54.1, the strongest reading since February, and its prices‑paid component climbed. Those signs suggest services inflation pressures rose in the month Waller said he is watching.

Meanwhile, Brent crude has remained elevated amid disruptions near the Strait of Hormuz. If higher energy costs transmit to broader core prices, the argument for pausing policy weakens and the case for renewed tightening strengthens.

Why does this matter beyond September?

The debate is not only whether the Fed skips one meeting. It’s about the longer-term stance toward inflation that has persistently run above the 2% goal for more than five years. Saying the committee can wait one meeting suggests patience rather than firm resolve to return inflation to target.

For savers, that distinction matters. Cash yields have frequently lagged inflation over recent years, eroding real purchasing power. Precious metals like gold and silver sit outside that interest-rate‑based framework: no institution guarantees them and no committee votes on their supply, so investors use them differently in a portfolio when inflation and policy are in flux.

What should you watch next?

Two data releases will be especially relevant. August payrolls, released Friday, September 4, can offer clues about labor-market momentum, though Waller suggested he does not expect surprises there. The decisive report will be the August consumer price index, published at 8:30 a.m. ET on Friday, September 11—the last major inflation reading before the FOMC meets on September 16.

Waller’s guidance is straightforward: a softer CPI would strengthen the case to hold rates, while a hotter reading would bring a September hike back onto the table and could sway policymakers who are currently open to waiting.

---

SOURCES
1. Christopher J. Waller, “The Economic Outlook and Some Comments on My Policy Communication,” Reuters NEXT Newsmaker Interview, Washington, D.C., September 3, 2026.
2. Market coverage of the post‑Waller repricing and the August ISM services report, September 3, 2026.
3. Federal Reserve, Minutes of the Federal Open Market Committee, July 28–29, 2026.
4. Coverage attributing the early‑session gold move to hopes of a short‑lived Iran escalation, September 3, 2026.
5. Reporting on Governor Waller’s comments indicating he would support holding rates steady at the September meeting, September 3, 2026.
6. U.S. Consumer Price Index release schedule for August 2026 data, published in September 2026.
7. CME Group, FedWatch Tool, market‑implied probabilities as of September 3, 2026.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Consult a qualified financial advisor before making investment decisions.

You May Also Like: 

• Gold Up, Silver Up. The Five Reasons Behind It Don’t All Agree.
• Barrick Just Delayed Its Biggest Move in Years. Gold Isn’t Why.
• Gold ETF Outflows Came From One Region. The Buying Came From Everywhere Else.
• Gold’s Sellers Are Trading Weeks. Its Buyers Are Counting Decades.
• The Iran War Just Got Worse. Gold Barely Noticed.
• Silver Is Falling Faster Than Gold Today. Its Deficit Didn’t Change.
• Wall Street Keeps Buying Gold. Washington Keeps Sending Mixed Signals.