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.
Base Case: Dovish 25-Basis-Point Cut (47.5% Probability)
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.
Hawkish 25-Basis-Point Cut (40% Probability)
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.
Fringe Scenarios (12% Probability Combined)
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."
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