The next Federal Reserve meeting is here, and it will mark a major turning point, with the central bank set to announce its first rate cut since it slashed its key rate to almost zero in March 2020 as the Covid pandemic started to spiral.
What's even more unusual about the imminent rate cut is that markets almost always know what the Fed will announce before the meeting. Yet ahead of today's announcement, there's an unusual degree of uncertainty, though markets are leaning toward a half-point rate cut.
Rate Cuts May Start With A Bang; S&P 500 Eyes New High
When Is The Fed Meeting Announcement?
The two-day Fed meeting ends with a policy statement at 2 p.m. ET. Fed Chairman Jerome Powell holds a press conference at 2:30 p.m.
How Big Of A Rate Cut On Sept. 18?
At the moment, markets are pricing in 61% odds of a half-percentage-point rate cut and 39% odds of a quarter-point rate cut, according to CME Group's FedWatch tool.
Meanwhile, markets have priced in 90% odds for 100 basis points of Fed rate cuts by the end of 2024, with 55% odds of 125 basis points in cuts. That means investors are expecting at least one, possibly two 50-basis-point rate cuts in the final three Fed meetings of the year, starting with this week.
Fed Meeting Agenda
The Fed is set to cut rates because inflation has moderated enough that policymakers have turned their focus to keeping the labor market from getting any softer.
The stock market's reaction will depend not just on the size of the rate cut, but on new Fed economic projections that also will be released at 2 p.m. and what Fed Chair Jerome Powell says at his 2:30 p.m. news conference.
The new economic projections, released once per quarter, include the "dot plot" of individual policymakers' assessment of where rates are headed by the end of 2024, 2025, 2026 and beyond. Investors focus on the median projection, which indicates whether hawks or doves have the upper hand.
The Fed's 2 p.m. policy statement also will provide an update on the Fed's balance sheet policy. Each month, the Fed is currently letting up to $25 billion in Treasury securities and $35 billion in government-backed mortgage securities run off its balance sheet as they mature, rather than reinvesting the sum.
Next Fed Meetings In 2024
After the Sept. 18 Fed policy update, the next Fed meeting will come seven weeks later, on Nov. 7-8.
Two-day Fed meetings always fall on Tuesdays and Wednesdays, but not the next meeting. That will begin on Wednesday so that it doesn't start on Election Day, Nov. 5.
The final Fed meeting of 2024, Dec. 17-18, will include a new batch of quarterly projections for the economy and the Fed's benchmark interest rate.
What Do Fed Rate Cuts Mean For The S&P 500?
The Fed sets monetary policy to meet its dual mandates for price stability and full employment. Policymakers cut interest rates when the balance of risks tilt toward inflation falling too low — below the Fed's 2% inflation target — or unemployment rising too high.
When the Fed is cutting rates, or even has a bias toward rate cuts, the "Fed Put" is said to be in force. A put option gives investors downside protection if a stock falls below a certain price. When Wall Street says there's a "Fed Put," the implication is that Powell & Co. will ride to the rescue if the S&P 500 sells off, because a falling stock market could keep the Fed from achieving its mandates.
History shows that the S&P 500 usually fares well after the Fed starts to lower interest rates. Over the prior nine rate-cutting cycles, the S&P 500 has gained nearly 10% on average in the six months following the first cut. The major exceptions came after the Fed began cutting in 2001 and 2007, because Fed easing didn't prove sufficient to avert recession and a hit to S&P 500 earnings.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
Fed Meeting Calendar 2025
Jan. 28-29
March 18-19 (Quarterly rate and economic projections)
May 6-7
June 7-8 (Quarterly rate and economic projections)
July 29-30
Sept. 16-17 (Quarterly rate and economic projections)
Oct. 28-29
Dec. 9-10 (Quarterly rate and economic projections)
