Wall Street traders are brimming with optimism as they anticipate a significant boost to the stock market following a likely rate cut this Wednesday. Options pricing indicates that the S&P 500 could experience a movement of approximately 0.6% in either direction, marking a potentially noteworthy post-Federal Reserve meeting shift. This would be the index’s most substantial reaction since March, when it rose by 1.1% after the Fed refrained from altering full-year interest rate forecasts amidst growing economic uncertainty.
According to federal funds futures trading data, there is a strong expectation for the Federal Reserve to reduce rates for the first time this year, with a staggering 94% probability of a 25 basis point cut being projected. The likelihood of a more aggressive 50 basis point cut sits at around 6%, reminiscent of the start of the previous year’s rate-cutting cycle in September.
The distinction between a 25 and a 50 basis point cut could have significant repercussions for the markets. A recent survey by Deutsche Bank conducted between September 9 and 11 revealed that respondents predict a 1% rise in the S&P 500 with a 50 basis point cut, compared to around 0.4% for the smaller reduction. “Risk-takers,” including portfolio managers and traders, anticipate an even more pronounced rally of 1.3% in response to a larger cut.
Entering this week’s meeting, stocks were trading at record highs, buoyed by expectations of lower borrowing costs, solid corporate earnings, and growing enthusiasm for artificial intelligence. However, the major indexes showed a mixed performance in intraday trading, with the Dow rising while the S&P 500 and technology-heavy Nasdaq saw declines.
The highly anticipated rate decision will coincide with the Federal Open Market Committee’s (FOMC) Summary of Economic Projections (SEP), which outlines policymakers’ forecasts on inflation, unemployment, and interest rates both in the near and long term. The Fed’s last SEP, released in June, projected three rate cuts by the end of the following year, with two more cuts expected in 2025.
Notably, Wednesday’s SEP will include insights from Stephen Miran, recently confirmed as an interim voting FOMC member, who has ties to the White House. President Trump has been vocal in urging the Fed to implement rate cuts, even resorting to extraordinary measures to influence the central bank, such as attempting to dismiss Fed Governor Lisa Cook. Miran is anticipated to advocate for a more substantial rate cut, aligning with the President’s stance.
Moreover, there are alternative avenues for engagement with Wednesday’s federal meeting. On the prediction market platform Polymarket, users can place bets on how often Fed Chair Jerome Powell will mention terms like “inflation,” “unemployment,” or “recession” during his post-meeting press conference. Investors often react to Powell’s language and tone as they assess market implications.
Polymarket also allows users to wager on dissent within the 12-person FOMC regarding the rate decision. At the last meeting in July, two policymakers—Trump appointees Christopher Waller and Michelle Bowman—expressed dissent when rates were held steady. While neither has publicly supported the idea of a 50-point cut this month, their positions could become pivotal in gauging market responses during this crucial meeting.
