Stock market today: Indexes edge up ahead of major Fed interest rate decision

Federal Reserve Bank Chair Jerome Powell announces that interest rates will remain unchanged during a news conference at the Federal Reserves’s William McChesney Martin building on June 12, 2024 in Washington, DC. Following the two-day Federal Open Markets Committee meeting Powell said the Fed has decided to keep their current rate range of 5.25-5.50 percent and signaled that it believes long-run rates will stay higher than previously indicated.

US stocks rose on Wednesday as traders readied for what’s likely to be the Federal Reserves’s first rate cut in four years.

Major indexes were slightly higher after the opening bell, with the S&P 500 looking to hit a fresh record after touching all-time highs in Tuesday’s session. Bond yields rose. The 10-year Treasury yield was up three basis points to 3.677%.

Central bankers are set to conclude their policy meeting and announce their highly anticipated decision on interest rates at 2 p.m. ET, with markets betting on a rate cut with certainty.

Investors are pricing in a 61% chance the Fed will cut rates 50 basis points, according to the CME FedWatch tool, down slightly from 63% odds priced in on Tuesday.

The debate has swung in favor of a larger rate cut versus a 25 basis point move following recent data points that support more rapid Fed easing. Softer labor market condition in July and August and a slight rise in the monthly core consumer price index last month bolster the case for a 50 basis point move, traders say.

Still, forecasters expect the Fed to tread cautiously given the upside risks to inflation stemming from loosening monetary policy too quickly.

“Though consensus is leaning toward a 50 basis point move, we look for the Fed to cut by 25 basis points today. Inflation growth is not yet at the Fed’s target for price stability, the unemployment rate still hovers around 4.0%, and federal deficit spending continues to surge,” John Lynch, chief investment officer at Comerica Wealth Management, said in a note Wednesday morning. “We suspect this next rate cycle may resemble the non-recessionary ‘tweaks’ of 1995.”

“Sure, there are risks of further labor market cooling, but I see the reignition of price pressures as a graver danger,” José Torres, a senior economist at Interactive Brokers, said, predicting a quarter-point cut.

Following the interest rate decision, all eyes will be on Fed Chair Jerome Powell, who will deliver prepared remarks during a press conference. Whether he strikes a dovish or hawkish tone, his commentary is likely to sway markets.

“Powell will face a communications challenge regardless of their chosen action. If the Fed opts for a 25bp reduction, the Chair will have to project confidence about the outlook and assuage concerns about the Fed falling behind the curve. Conversely, if they cut by 50bps, Powell will need to avoid sending negative signals about the economy and dissuade markets from pricing a sequence of large reductions. These will be challenging — but manageable — communications,” Deutsche Bank strategists said.

Investors should gear up for potential volatility whatever the Fed ends up deciding. While the market has been building toward this moment for most of the year, it shouldn’t be assumed the move is fully priced in, and a sharp swing in either direction is possible.

“The intraday path on Powell Fed Days has been interesting, to say the least,” Bespoke Investment Group said in a note. “While the market has usually bounced immediately following the 2 PM rate decision, the sell-off usually starts at or near the end of Powell’s post-FOMC press conference.”

Here’s where US indexes stood shortly after the 9:30 a.m. opening bell on Wednesday:

• S&P 500: 5,635.51, up 0.02%
• Dow Jones Industrial Average: 41,537.05, down 0.17% (-69.13 points)
• Nasdaq composite: 17,664.14, up 0.21%

Here’s what else is going on:

• Bitcoin is surging on hopes rate cuts could drive a speculative rush into the cryptocurrency.
• The more markets price in a jumbo rate cut, the more likely the Fed is to deliver, according to BMO.
• The biggest threat to the US dollar is America’s exorbitant debt load, according to JPMorgan.

In commodities, bonds, and crypto:

• Oil futures edged down. West Texas Intermediate crude oil dipped 0.7% to $70.69 a barrel. Brent crude, the international benchmark, edged lower 0.6% to $73.31 a barrel.
• Gold ticked 0.4% higher to $2,604 an ounce.
• The 10-year Treasury yield edged up three basis points to 3.677%.
• Bitcoin rose 1% to $60,041.