The Fed is likely to issue a 25 basis point rate cut this week. Options are pricing in a nearly 1% move in the S&P 500 on the day of the decision.
The moment investors have been waiting for all year is probably at hand.
Markets have been clamoring for the Federal Reserve to resume its rate-cutting cycle, and the central bank finally looks poised to trim its target rate at this week’s policy meeting. The odds for a cut have risen steadily in the last few weeks thanks to tame inflation data and recent signs of weakness in the job market.
On Monday, the market priced in a 96.2% chance the Fed would trim its target rate by a quarter of a percentage point on Wednesday.
JPMorgan also thinks a Fed rate cut is overwhelmingly likely. The bank says there’s a 95% chance the Fed will cut rates in some capacity, and a 87.5% chance it’ll be a 25 basis-point cut, according to the scenarios it laid out in a recent note.
“We see a Dovish Cut as the most likely outcome, producing a positive gain on the day”, Andrew Tyler, the global head of market intelligence at JPMorgan, said, citing research from the bank’s chief US economist.
Markets are expecting it to be a potentially volatile day for trading. S&P 500 options are pricing in an 88 basis point move on the day of the rate decision.
Here’s how JPMorgan thinks stock could react to a range of potential outcomes. The Fed cuts rates by 25 basis points and remains dovish
The bank sees this as the most likely outcome of the meeting, pegging a 47.5% probability that the central bank will issue a quarter-point cut and issue dovish commentary around the state of the economy.
