U.S. stocks traded flat ahead of the US Federal Reserve policy announcement scheduled later tonight, September 17, with the market widely expecting the first rate cut of 2025, as policymakers are believed to prioritize addressing labor market weaknesses over the firm inflation print.
The S&P 500 traded 0.05% higher at 6,610, while Nasdaq-100 futures remained flat at 22,337. The Dow Jones Industrial Average rose by 123.39 points, or 0.27%, to 45,881.29.
Markets brace for 25-basis-point cut
The market has already priced in a 25-basis-point cut from the Fed, with speculation also suggesting that it may announce a larger 50-basis-point cut amid the deterioration in the labour market.
Traders have priced in a 96% chance that the Fed will cut rates by 25 basis points, or a quarter percentage point, and just 4% odds that the market will get a half-point reduction Wednesday, per the CME Group’s FedWatch tool.
If a rate cut is announced, it would be the first since Donald Trump took charge as US President in January, as rate cuts were previously put on hold. The Fed viewed higher import tariffs and tighter immigration policies set by the Trump administration as factors that could fuel inflation, and cutting interest rates could further exacerbate price pressures.
The White House has attacked the Fed on multiple occasions to lower rates to boost the economy, but fears of uncertainty surrounding Trump’s economic policies have led the central bank to hold rates steady for five consecutive meetings.
Fed Chair Jerome Powell, in his Jackson Hole speech on August 22, gave a tepid signal about possible interest rate cuts in the coming months but provided no indication on the timing of such a move.
Dot Plot in focus
Asutosh Mishra, Head of Research at Ashika Institutional Equities, said that the markets widely expect the Fed to deliver a 25-basis-point cut, lowering the funds rate to 4.00%–4.25%, marking its first move since December 2024. Attention, however, will quickly turn to the dot plot for clues: does the Fed signal back-to-back cuts in October and November, or does it stay guarded amid lingering inflation concerns?
“Inflation remains the key swing factor,” he said, with tariffs posing the risk of a near-term flare-up. The labour market looks steady but is showing early cracks; low unemployment paired with fewer job openings points to rising recession risks. With the neutral rate estimated near 3% versus today’s 4.4%, the Fed has meaningful room to ease if conditions deteriorate, he further noted.
Meanwhile, U.S. key indices have broken multiple record highs in recent weeks on expectations that the Fed will implement a rate cut in hopes of giving the economy a boost.
Although initially weighed down by concerns over Trump’s tariff policies, the US market rebounded strongly, led primarily by tech stocks buoyed by optimistic expectations surrounding AI advancements. The S&P 500 has advanced 12.33% in 2025 so far, the Nasdaq-100 has risen 15%, and the Dow Jones Industrial Average has surged 7.55% during the same period.
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