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Tuesday's Market Minute: FOMC In Focus

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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.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.
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