US equities are treading with caution on Wednesday, says Capital.com’s Daniela Hathorn, as markets focus on the Federal Reserve meeting taking place later today.
As Hathorn comments: “The odds of a rate cut, as shown on the CME FedWatch tool, are around 90%, suggesting a strong conviction that the central bank will ease policy once again, even if Powell tried to warn against it at the previous meeting.
“The fact that the odds are so heavily priced in likely means that the reaction to a 25bps will be subdued. However, the messaging and updated economic projections will be the key focus. A cut is a cut, but the tone around the reasoning will make all the difference. A hawkish cut, whereby Powell signals concern about the path of inflation and once again attempts to wind down some of the expectations about further easing next year, will have a significantly different impact on markets that a dovish cut, whereby the softening labour market remains the key focus, with further cuts priced in.
“For the stock market, the devil will be in the detail. Markets will want to know where FOMC members see the rate in December 2026 and whether there have been any changes from the previous projection in September. Also, the vote split, how many voters dissent the decision, whether it’s because they believe the rate should remain unchanged or even reduced further. These details will be key.
“For the S&P 500, which is tentatively waiting it out just below all-time highs, a dovish outlook could provide the push needed to set new highs, with 6,915 the key resistance in focus. In turn, a cautious and hawkish tone could stall the upside further, deepening the pullback towards the November lows.”
Also sharing his thinking on what’s to come later, George Lagarias, Chief Economist at Forvis Mazars comments: “Today isn’t about the – wholly expected – rate cut, but about the tone and the degree of homogeneity among the FOMC members. It is also about the Fed Chair.
“Better than expected inflation, very weak employment numbers, as well as an almost universal investor expectation for lower rates, leave the Fed little room other than to proceed with another rate cut today. Anything else would constitute a big surprise, probably with negative market consequences.
“Unless a surprise occurs, investors will likely focus on Jerome Powell’s press conference, which could very well be his last one before his replacement is announced by the White House. There are a number of questions of interest at the moment: is the Fed united in this decision or is dissent growing? Is it performing a rate cut because it genuinely feels more relaxed about inflation or is it compelled because of market expectations? Will it be a hawkish or a dovish cut?”
