Fed Leaves Rates at 3.50%–3.75%, Signals More Tightening; Gold Slides Nearly 2%
Asian hours on June 18 (Beijing time) saw spot gold trading around $4,280 an ounce, after dropping nearly 2% Wednesday as investors digested a Federal Reserve decision that kept the policy rate unchanged at 3.50%–3.75% but delivered a distinctly hawkish message.
In a major shift, the Fed's updated policy statement removed prior language that had pointed to possible rate cuts this year and stripped out forward guidance on future moves. New Chair Walsh stressed the need to bring inflation under control and announced five working groups to review key policy areas.
U.S. equities sold off sharply after the decision. The Dow fell 0.98% to 51,492.55, the S&P 500 dropped 1.21% to 7,420.10, and the Nasdaq slid 1.34% to 26,021.66, snapping its run of consecutive record closes. All 11 S&P sectors finished lower, led by communication services (down about 3%), while industrials were the most resilient (down 0.1%). Rate-sensitive regional banks lagged, with the KBW Regional Banking Index down 1.8%; a homebuilders ETF fell 2.3%. The CBOE Volatility Index rose 2 points to 18.44, its biggest gain in four days. Trading volume totaled 23.66 billion shares, above the 20-day average.
Fed projections underscored the hawkish tilt. In the "dot plot," nine of 19 policymakers are looking for at least one rate hike by the end of 2026, and the median rate projection rose to 3.75% from 3.4% in March. One official did not submit a rate forecast; another did not provide a 2028 projection. The Fed also lifted its end-2026 inflation forecast to 3.6% from 2.7%, while trimming its 2026 GDP growth outlook to 2.2% from 2.4%.
Rates markets repriced quickly. Short-term interest-rate futures now imply the probability of a September hike has moved above the odds of no change, and the chance of no action by year-end fell from 40% on Tuesday to about 13%. CME's FedWatch showed: by October, a hold at 44.1%, at least a 25-basis-point hike at 44.3%, and a 25-basis-point cut at 11.6%. By December, a hold at 15.5%, at least a 25-basis-point hike at 83.1% (up from 59.4% the prior day), and a 25-basis-point cut at 1.4%.
Gold extended losses as the dollar strengthened and inflation concerns resurfaced. Spot gold settled Wednesday at $4,257.60 an ounce. Independent metals trader Tai Wong called Walsh "sharp, decisive, and energetic," arguing the chair's remarks were even more hawkish than those of former Chair Powell. The dollar's rise made dollar-priced bullion more expensive for overseas buyers, while higher oil prices added to inflation anxiety.
Other precious metals also declined: silver fell nearly 3% to $67.91, platinum dropped 2% to $1,768.03, and palladium slid 3% to $1,309.25.
Oil prices climbed nearly 1% on Wednesday, supported by renewed geopolitical risk. Brent settled up 0.75% at $79.55 a barrel, while U.S. crude gained 0.97% to $76.79; in early Asia, U.S. crude traded near $75 after briefly approaching $74 the previous day. President Trump said a ceasefire memorandum of understanding (MoU) with Iran is not final and warned airstrikes could resume if he is dissatisfied or if Iran does not "behave." City Index and FOREX analyst Fawad Razaqzada said lingering uncertainty makes a rebound from the prior sharp drop in oil prices "logical."
On the supply side, U.S. Energy Information Administration data shows crude inventories have fallen for 10 straight weeks to the lowest level since 1985. Longer term, the International Energy Agency's first 2027 outlook projects a sizeable surplus, with global supply expected to rise by 8 million barrels per day versus demand growth of 2 million barrels per day. The IEA added that a short-term U.S.-Iran deal could open the door to rebuilding depleted inventories or creating new strategic reserves, though industry officials cautioned that restoring pre-war production and refining may take weeks, months, or even years.
In FX, the U.S. Dollar Index rose 0.82% on Wednesday to a high of 100.57, the strongest in nearly a week, reflecting the Fed's hawkish pivot. The dollar strengthened broadly: EUR/USD fell 0.93% to 1.1499 and GBP/USD dropped 1.01% to 1.3291. Markets are watching Thursday's Bank of England meeting for guidance; policy is expected to remain unchanged. UK May inflation unexpectedly held at 2.8%, the lowest in 13 months, and markets are pricing in one rate hike before year-end.
The Japanese yen was at 160.63 per dollar, up 0.11%, with traders alert to possible official support for the currency after the Bank of Japan raised rates Tuesday to their highest level in 31 years and signaled more tightening without giving a timetable. After Sweden's central bank held rates steady, the Swedish krona weakened 0.8% to 9.5028 per dollar; the bank cited Middle East conflict-driven inflation risks while noting low core inflation and slightly softer activity.
Geopolitics remained in focus. Iran's Foreign Ministry said the Iran-U.S. talks previously set for Friday, June 19, in Switzerland are now "no longer certain" and have been temporarily postponed. Spokesperson Baghaei described Iran as a superpower "like a wounded lion," arguing the country has endured heavy losses but retains strength and influence.
The U.S. released the official text of the MoU with Iran, a 14-provision document titled "Memorandum of Understanding Between the United States of America and the Islamic Republic of Iran." According to a senior U.S. official, it covers reopening the Strait of Hormuz, easing certain financial restrictions, and setting objectives for future technical talks on Iran's nuclear issue. The text includes commitments to immediately and permanently halt military operations on all fronts (including Lebanon), refrain from future war, and negotiate a final agreement within a maximum of 60 days. It also says the U.S. would begin lifting its maritime blockade immediately and fully lift it within 30 days, and would withdraw forces from surrounding regions within 30 days after a final agreement is reached. It outlines a pledge to work with regional partners to invest at least $300 billion in Iran's reconstruction and development, with mechanisms to be finalized within 60 days as part of the final agreement. The U.S. would also terminate sanctions and unlock Iran's frozen or restricted assets following implementation.
Iran, for its part, would ensure commercial vessels can transit freely and safely between the Persian Gulf and the Sea of Oman within 60 days, conduct mine-clearing within 30 days, reaffirm it will not acquire or develop nuclear weapons, and agree—along with the U.S.—to dilute enriched uranium under International Atomic Energy Agency supervision.
Reporting around the signing timeline remains fluid. Senior U.S. officials previously said the MoU was signed electronically on June 15, with a ceremony planned for June 19 in Switzerland, while Trump said on June 17 in France it could be signed on June 18 or 19. Iran's state news agency published the full text late June 17 local time.
Axios reported the U.S., Iran and mediators were discussing moving the signing forward to Wednesday via electronic signature so the Hormuz provisions could take effect immediately, and that Washington may ultimately release the full text. Sources said speeding up the process was aimed at opening the Strait sooner; another source disputed that White House domestic pressure drove the move and said Iran had demanded the text not be published before formal signing.
Baghaei also said the 60-day transition period specified in the MoU begins on June 18 and warned that any continued Israeli attacks or occupation in Lebanon would be treated as a breach. He added the U.S. must end the maritime blockade within 30 days and said normal traffic through the Strait of Hormuz would be restored within a set timeframe under Iran's responsibility, with cooperation with Oman and consultations with regional countries as needed. White House officials later confirmed Trump had signed the document; Iran said the Switzerland meeting is intended for the next phase of talks, not the MoU signing.
In China-related domestic business news, CCTV Finance reported that several domestically developed high-speed optical communications chips for supercomputing centers have completed process validation and are moving into mass production and deliveries, narrowing gaps in high-end optical chip supply. Demand for new types of optical fiber products is accelerating alongside data-center expansion: a company in Wujiang, Suzhou, said optical-fiber product sales are up more than 35% year over year, monthly orders are nearly full, and current capacity is already booked through the first quarter of 2027.
