This market commentary has been extracted from CPM Group’s 4 September 2025 Precious Metals Advisory, written before the 17 September FOMC meeting. We would like to thank Silvercorp Metals for making this paid CPM research available free of charge. 

The market consensus is overwhelmingly that the Fed will reduce interest rates during the balance of this year, beginning in September. The Fed’s own last projections, released in June 2025, suggest two 25 basis points (bps) rate cuts in the final four months. The markets are pricing two 25 bps rate cuts with one projected for September and the other in December.

While the markets and the Fed seem aligned on the number of cuts for the balance of 2025, there could be a difference in the timing of the rate cuts. Additionally, the wisdom of cutting rates at this time is not assured.

The Fed itself has expressed an array of reservations, pointing to still present inflationary pressures, relatively strong economic performance in a number of segments of the U.S. economy, and the likely inflationary consequences of the Trump Administration’s tariff, immigration, and other policies. Some of these policies carry both inflationary and recessionary pressures, complicating decision making for the Fed’s policy makers as well as everyone else in the world… including precious metals investors and commercial enterprises.

The Fed may pull forward or delay one of its rate cuts depending on the incoming data that gets released over the next couple of months. If there are growing signs of economic weakness and a more pronounced slowdown in labor market conditions, it could prompt the Fed to adhere to the September and December anticipated schedule or even pull forward its two rate cuts.

Matters are complicated for the Fed by the stickiness of inflation and the possibility that inflation could start to tick higher once the effects of tariffs start to be felt more fully in the economy. This scenario could cause the Fed to delay rate cuts, if economic or labor market conditions do not deteriorate significantly.

“This CPM Group Market Commentary was produced for Silvercorp, one of the premier silver mining companies. We would like to thank Silvercorp for making this paid CPM Group research available free of charge.

Silvercorp offers investors exposure to silver production through its enhanced leverage to the metal. The Company’s mines have been consistently profitable, further bolstered by rising silver prices.”

With markets expecting rate cuts in September and December, the Fed pulling forward rate reductions to September and October likely would support safe haven assets such as gold and silver. Conversely, a push backward to October and December rate cuts could have a temporarily negative impact on gold and silver prices as market expectations would be disappointed in September and economic decision makers would need to reassess their pessimistic expectations.

Tariffs, Inflation, Employment, And Growth Risks

Businesses, for the most part, are working through the inventory they built up earlier this year before various tariffs took effect or at least were more clearly delineated in ever-shifting U.S. Administration pronouncements. As these inventories are replenished with fresh imports, the increased cost due to the tariffs will at least in part be passed on to the consumer, fueling inflation. Already there are signs of this, and increased warnings by various companies of tariff-related price increases on the horizon.

An uptick in the prices of essential goods is expected to reduce the amount of overall consumption, weighing on economic growth.

Another factor weighing on prices and economic output is the immigration policies being pursued. Immigration arrests and deportations have reduced the 164 million U.S. civilian work force by 1.2 million or 0.7%, according to Administration released data. Around 20% or 32.8 million U.S. workers are immigrants, mostly legally here. In addition to those already arrested and/or deported, legal immigrant residents are leaving their jobs out of fears of arrest and possible deportation. The reduction of worker participation has been felt in reductions in agricultural harvests, meat processing plants, construction, and a range of service industries. This has both recessionary and inflationary consequences, too.

Eventually the Fed will have to decide how much inflation is likely to hurt economic growth and accordingly decide the amount of rate cuts yet in 2025 and in 2026. According to Fed projections released in the middle of June, when they were aware of the tariffs but there was no clarity on what the tariffs would finally look like, the Fed was projecting a single 25 bps rate cut in 2026

Markets vs. Fed In 2026

Current market bets suggest another three to four 25 bps rate cuts for 2026. These expectations far exceed the Fed’s one 25 bps rate cut for 2026, projected in June. It is possible that the Fed will raise the number of rate cuts it plans in its upcoming projections due for release in the middle of September. Given the Fed’s concerns about inflation, however, it may not project four or even three rate cuts during 2026.

The market’s expectations exceeding those of the Fed is not surprising, given the market has typically expected more rate cuts than the Fed has delivered when looking back at past and current rate-cutting cycles.

Risks To Fed Independence

That said, there are changes occurring at the Fed which could align market expectations of rate cuts with those of the Fed. These changes are essentially a Fed being filled with governors that are generally more willing to reduce interest rates at the risk of higher inflation.

There are two problems with such potential, if not probable, changes. First, unease about the Fed’s independence from the government. Second, a Fed that is lowering rates at a time when inflation is struggling to decline and there is a high risk of inflation rising due to import tariffs on virtually all goods entering the United States. While the recent softness in labor data justifies some loosening in monetary policy, the Fed as it currently is comprised already is struggling to balance its dual mandate of maximizing employment while restraining inflation. Packing the FOMC policy making board with people willing to accept higher inflation in order to goose employment and economic activity would reduce the Fed’s credibility globally.

The loss of Fed independence from the U.S. government or even the perception among global market participants of such a loss of independence could be problematic for both the U.S. as well as the global economy, given the importance of the United States to the global economy, financial markets, and monetary system. Any interference or perceived interference by the U.S. government in the functioning of Fed could result in higher borrowing costs for the U.S., especially on the long end of the curve, defeating the current efforts of the U.S. Administration to lower borrowing costs. This already is being seen in interest rate markets. It could grow more severe. Reduced faith in the U.S. central bank’s independence already is and would continue to be very supportive of gold and silver investment demand.

Broader Economic Risks

A combination of lower economic growth, sticky inflation, problematic government finances, loss of independence of various U.S. government bodies, reduced availability of migrant labor and firing of federal workers, and rising cross border global political risks all are expected to create a challenging economic environment in the next several quarters.

CPM Group has been projecting an economic recession to start sometime in late 2025 or 2026. This has been CPM Group’s position since around 2021-2022. Economic data have for the most part been fairly resilient so far in 2025. But it also should be noted that some of the risks like tariffs and firing of federal workers have only started this year and would take some time to show up in the data. It bears noting that many of the cuts in government programs in the recent budget bill are scheduled to not be implemented until after the November 2026 Congressional elections, to protect Republican congress members from facing even more dire economic conditions during their re-election efforts. This will delay the reductions in economic activity from these policies until 2027.

That said, early signs of such a downturn are becoming visible, with many of the aforementioned factors coming together to boost inflation and weigh on economic growth simultaneously. Inflation stickiness, tariffs, and questions over Fed independence could keep volatility high across asset classes has written and spoken recently that the political, economic, and financial risks facing the global economy are greater today than at any time since December 1941. This is an accurate portrayal of the current environment in which investors must decide whether to buy and hold more gold and silver, or less. At present, the former seems the more reasonable precious metals investment posture, at least to CPM.

“This CPM Group Market Commentary was produced for Silvercorp, one of the premier silver mining companies. We would like to thank Silvercorp for making this paid CPM Group research available free of charge.

Silvercorp offers investors exposure to silver production through its enhanced leverage to the metal. The Company’s mines have been consistently profitable, further bolstered by rising silver prices.”