Fed Bets: No Cuts To Jumbo 50 Bps Reduction — The Scenarios At Play And How Stocks May React

The moment Wall Street has been waiting for months may finally be here. The Federal Reserve is widely expected to resume its rate-cutting cycle at , with traders all but certain that a 25-basis-point cut is coming on Wednesday.

The market has priced in a 94% chance of a quarter-point reduction, as per CME Fedwatch tool. JPMorgan analysts echoed the consensus, pegging a 95% probability of some form of rate cut and an 87.5% chance of the Fed opting for the expected 25-basis-point trim.

"We see a dovish cut as the most likely outcome, producing a positive gain on the day," Andrew Tyler, JPMorgan's global head of market intelligence, told Business Insider, citing research from the bank's chief US economist. S&P 500 contracts are pricing in an 88-basis-point swing on the day of the decision.

If the Fed trims rates and signals accommodative policy, Wall Street stocks could see an immediate 1% bump, taking the S&P 500 to roughly 6,650, as per JP Morgan. But Tyler warns that the initial euphoria could fade. A "sell-the-news" effect, weaker corporate buybacks, and quarter-end rebalancing could drag equities as much as 5% lower into month-end.

Still, the bank sees opportunity in any pullback, with overweight calls on mega-cap tech, AI plays, utilities, healthcare, and biotech.

A rate cut accompanied by hawkish commentary could prove a buzzkill. If Chair Jerome Powell emphasises labour market risks or downplays inflation concerns, stocks may tread water or slip up to 0.5%, believes JPMorgan.

If both the dovish and hawkish stance on a 25 basis point cut are out of the window, then these are the fringe scenarios JPMorgan sees:

• No cut (4% chance): S&P 500 could slide 1–2%, testing 6,450.

• Jumbo 50-basis-point cut (7.5% chance): Markets could swing either way, with a 1.5% move. A surprise half-point cut might spark fears the Fed sees deeper economic trouble, or relief that policymakers are acting decisively.

As JPMorgan's Tyler summed it up: "Fed Day may be a sell-the-news event, but it could also sow the seeds for the next rally."