Will there be a plan for future rate cuts?
Historically, stocks tend to fare better when the Fed takes a more cautious approach,. When the Fed cut rates three times in both 1995 and 1998, the economic expansion continued, with the S&P 500 rising 15% and 8.6%, respectively. During extended rate-cutting cycles that began in 2001 and 2007, however, the index declined 28% and 40%.
Edward Moya, senior market analyst at OANDA, predicts that the Fed will transition to a more dovish stance and will progressively have to deliver more rate cuts as it deals with market uncertainty. “The best case would be for the Fed to deliver not just one cut tomorrow, but also another before the end of the year,” he explained.
“It’s all about the forward guidance. … Powell will have to walk a fine line,” says Mark Freeman, chief investment officer at Socorro Asset Management. “The Fed can’t be pre-committed to future rate cuts, but should be ready to act as needed—that’s the responsible approach and that’s what the market expects.”, Federal-funds futures now show only a 47% chance that rates get cut on Wednesday, sharply down from 92% a week ago.
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