Tuesday's Market Minute: FOMC In Focus

The Federal Reserve Open Market Committee begins a two-day meeting today with an announcement on interest rates due tomorrow at 2 PM ET. Expectations are for a 25 basis-point rate cut and the equity market has already priced this in when looking at the rally over the last two months.

The market expects a cut and the Fed may well have to deliver despite many U.S. data points reflecting otherwise. A few of the Fed members have stated that a rate cut is not warranted but the sway of Fed Chair Powell and Vice-Chair Clarida may tip the scales. No rate cut tomorrow would increase volatility in the equity market and create a potential sell-off, which the FOMC wants to avoid. On the other hand, some market-watchers are expecting a 50 basis-point cut, with probabilities at about a 25% chance according to the Fed Fund Futures market. This would seemingly be too much too soon with below 4% unemployment, GDP growth, and consumer spending at robust levels, but some think the Fed will do a one-and-done to accommodate a slowing economy. The odds are against this move, and the Fed has become a predictable entity over the last several years and dislikes disrupting markets.

As investors await the key decision, the hype may outweigh the reaction for stocks as a cut is already priced into the market.

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