The Federal Reserve is expected to cut rates on Wednesday at the Federal Open Market Committee meeting for September.
This would mark the first cut since December 2024 and would come with stock market indexes at all-time highs.
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Rate Cut Expected
President Donald Trump has called for a rate cut for multiple months and could get his wish on Wednesday, with Federal Reserve Chairman Jerome Powell expected to announce a rate cut of at least 25 basis points.
The last cut came in December, which was also a 25 basis points cut. Some experts point to a potential 50 basis points cut, which would be the biggest cut since September 2024.
The CME FedWatch Tool indicates a 96.1% probability of a 25-basis-point rate cut on Wednesday and a 3.9% chance of a 50-basis-point move. Prediction market Kalshi shows similar expectations, with a 94% chance of a 25-point cut and a 5% chance of a larger reduction. Kalshi places the odds of no rate cut at just 3%.
The Fed’s decision comes with inflation, unemployment and consumer spending all showing signs of worry.
After Wednesday’s rate cut decision, focus is likely to shift to the upcoming FOMC meetings in October and December, where additional moves — or the first cut of 2025 — could be on the table. Markets will also watch the Dot Plot for the Fed’s projections on growth, inflation, unemployment, and the path of future rate cuts.
What Experts Are Saying
Comerica Bank Chief Economist Bill Adams expects a 25-point rate cut on Wednesday. The economist said that with the expectations for the rate cut, the Dot Plot could be of particular interest.
“If Chair Powell repeats the cautious guidance from his speech at Jackson Hole in August, markets could abruptly reprice their aggressive pre-meeting rate cut expectations,” Adams said.
Louis Navellier of Navellier & Associates warns that a 25-point rate cut could see President Trump “continue to bash” Powell.
“President Trump has been saying that he expects a ‘big cut’ from the Fed on Wednesday. Specifically, Trump said, ‘I think you have a big cut’ and ‘it’s perfect for cutting,'” Navellier noted.
Navellier said the smaller rate cut could come due to retail sales reported Tuesday that showed growth of 0.6% in August, higher than a consensus estimate of a 0.3% increase.
The August retail sales showed nine of the thirteen categories up, which could indicate healthy spending, Navellier said.
Freedom Capital Markets Chief Market Strategist Jay Woods questions whether the stock market is rallying too quickly and ahead of the actual Federal Reserve decision.
“Has a rate cut been baked into the recent rally?” Woods asks in a weekly newsletter.
With stocks hitting all-time highs, Woods said a key question is if a 25-point cut will be enough for the markets or if a 50-basis point cut is needed to continue the momentum.
“I believe that we could see excessive volatility after the press conference, and this is more likely to be a sell-the-news event. Any sell-off should set us up for a rally later in the year and pick up steam as we head into the final earnings season of 2025.”
Woods said another area to watch will be whether the Fed’s biggest concern is unemployment or inflation. The market strategist also noted that any dissent from Fed members advocating for smaller or larger cuts, or no cut at all, could be interesting.
“It will also be telling to see if Jerome Powell still has a solid consensus amongst his peers.”
Woods also highlighted the Dot Plot, which will show where Fed members want rates to be at the end of 2025.
“There’s no wiggle room here. Their take on the end of 2025 essentially means this is where it will be. So the answer to one or two more cuts should be revealed by the dots.”
Stocks Hit Record Highs
Stock indexes hit record highs last week, with several reaching new highs on Monday.
Here are the current prices of the major indexes and their 52-week ranges.
- SPDR S&P 500 ETF Trust (NYSE:SPY): $660.17 now, 52-week range of $481.81 to $661.78
- SPDR Dow Jones Industrial Average ETF (NYSE:DIA): $458.92 now, 52-week range of $366.33 to $462.31
- Invesco QQQ Trust (NASDAQ:QQQ): $591.20 now, 52-week range of $402.39 to $592.86
Of the three ETFs, the SPY and QQQ both hit new 52-week highs earlier during Tuesday’s intraday session.
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Image created using artificial intelligence via Midjourney.
