Today is an eventful day for the global markets. The much-awaited day for the US Fed pivot is here as the world’s largest central bank is likely to cut rates for the first time in four years since March 2020. FOMC meeting is being held on September 17-18 and the decision on interest rates will be announced today at 2 pm ET by the Fed chair Jerome Powell.
The Fed’s benchmark rate path projections, or ‘dot plots’ are also scheduled to be issued simultaneously with revised quarterly predictions. Fed Chair Jerome Powell’s press conference at 2:30 p.m., will be the keenly watched event today.
Investors are focusing on the Fed’s immediate actions, as policymakers and the state of the US economy remain uncertain, with some economists arguing the Fed’s delay of aggressive rate cuts could hinder labor market growth.
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Therefore, Powell’s press conference today is crucial for traders and investors, as it will provide clear guidance on policy direction and potential rate cuts if economic conditions worsen. Fed officials have already sounded out that going forward, labor data will be more important than inflation.
The last time the Federal Reserve hiked the benchmark federal funds rate to 5.25% to 5.5% was in July 2023, which was 14 months ago. Since then, the Fed has kept the rates unchanged.
Recent inflation data indicates a modest cut of 0.25%. This is a positive sign for Wall Street, as a 0.5% rate cut may suggest potential worsening of economic conditions. Therefore, a higher-than-anticipated interest rate cut may not be a pleasant surprise for the markets.
Only a ‘significant deterioration’ in the labor market conditions could propel the US Fed to go for aggressive rate cuts. That could also mean a piece of bad news for the stock market as it signals the weakening of the markets impacting corporate earnings.
Markets, meanwhile, anticipate a Fed rate cut of at least 50bps in one of the three remaining policy committee meetings before the end of the year. The next FOMC meetings are scheduled for November 6-7 and later on December 17-18.
“For equities, focus remains not on what the Fed will do, but what the Fed can do. With 500bp of room to reduce rates, as well as the potential to bring quantitative tightening to an end were conditions to require it, the ‘Fed put’ remains as strong and as forceful as ever. In turn, this should see equity dips remain relatively shallow, and give investors confidence to continue positioning themselves further out on the risk curve,” says Michael Brown Senior Research Strategist at Pepperstone.
Read More: US Fed rate cut: All eyes on Powell press conference in the FOMC meeting – Investing Abroad