Fed Hikes Rates Amid Rising Inflation, Gold Defies Conventional Wisdom

The Federal Reserve has raised interest rates for the first time in over three years, lifting its benchmark policy rate by 25 basis points to 3.75%-4%. The decision came despite President Donald Trump's repeated demands for sharply lower interest rates.

Fed Chair Kevin Warsh defended the unanimous move, saying inflation remained too high and had persisted for too long. He described the decision as 'sober' and 'responsible,' indicating that rates could be raised further if price pressures failed to ease.

The rate increase has implications beyond borrowing costs, with gold trading near record levels despite real interest rates being at their highest levels in years. Under conventional economic theory, higher real interest rates should weigh on gold because bullion generates no interest or dividend and becomes relatively less attractive when interest-bearing assets offer higher returns.