What the Fed’s Rate Call Could Mean for the Stock Market

Wall Street is pretty confident that stock market will get a boost from a rate cut on Wednesday.

Traders expect the S&P 500 to move about 0.6% in either direction on today, according to options pricing data. That would be the S&P 500’s biggest post-Fed-Meeting move since March, when the benchmark index finished up 1.1% after policymakers left their full-year interest rate forecasts despite increasing economic uncertainty. 

The Federal Reserve is widely expected to cut rates for the first time this year, with federal funds futures trading data putting the odds of a 25 basis point cut at about 94% Wednesday morning. Traders see a 6% chance the Fed lowers rates by 50 bps, the same amount with which it kicked off last year’s rate-cutting cycle in September. 

The difference between a 25- and 50-point cut could be significant for markets. According to a Deutsche Bank survey conducted between Sept. 9 and 11, respondents expect the S&P 500 to rise 1% in the event of a 50-point cut, compared with about 0.4% on a smaller one. “Risk-takers”—respondents who identify as portfolio managers or traders—forecast a 1.3% rally on a jumbo cut. 

Stocks were at record highs heading into this week’s meeting, buoyed by anticipation of lower borrowing costs, resilient corporate earnings, and enthusiasm for artificial intelligence. The major indexes were mixed in intraday trading Wednesday, with the Dow rising as the S&P 500 and tech-heavy Nasdaq traded lower. (Follow Investopedia’s live markets coverage here.)

Economic Projections, Dissents Will Be in Focus

Wednesday’s rate decision will be announced alongside the Federal Open Market Committee’s Summary of Economic Projections, in which policymakers lay out their near- and long-term expectations for inflation, unemployment, and interest rates. In the most recent SEP from June, the Fed forecast cutting rates three times by the end of next year, with two cuts expected in 2025.

Wednesday’s SEP will include forecasts from White House economic advisor Stephen Miran, whom the Senate confirmed as an interim voting FOMC member earlier this week. Since returning to the White House, President Trump has hounded the Fed to cut interest rates, and in recent months has taken unprecedented steps to sway the central bank, including attempting to fire Fed Governor Lisa Cook. Miran is expected to push for the jumbo cut the president wants.

There are other ways to play today’s Fed meting. On predictions market Polymarket, users can bet on how many times Fed Chair Jerome Powell will say “inflation,” “unemployment,” or “recession” during his press conference Wednesday afternoon. The stock and bond markets often move as investors evaluate the language and tone of Powell’s comments. 

Polymarket users can also bet on how many members of the 12-person FOMC will dissent from Wednesday’s decision. Two policymakers—Trump appointees Christopher Waller and Michelle Bowman, both seen as top candidates to replace Powell as chair next year—dissented when the Fed held rates steady at its last meeting in July, but neither has publicly advocated for a 50-point cut this month.