The Federal Reserve famously hates to surprise financial markets. That’s why Wall Street forecasters overwhelmingly expect the U.S. central bank to leave its benchmark interest rate unchanged when the Fed announces its latest policy statement today at 2 p.m. EST.
Fed Chair Jerome Powell has repeatedly signaled of late that policymakers are in no hurry to lower borrowing costs for consumers and business. His bigger challenge: How to provide a measure of certainty on the direction of monetary policy as investors try to peer through the fog of uncertainty enveloping the global economy.
Stocks edged up in morning trade ahead of the Fed’s decision, with the S&P 500 rising 39 points, or 0.7%, to 5,653, while the Dow Jones Industrial Average and Nasdaq Composite rose 0.5% and 1%, respectively.
Perhaps the most pressing question Powell is likely to face during his press conference Wednesday will focus on the potential impact of the brewing trade war between the U.S. and the country’s key trading partners. The barrage of tariffs President Trump has aimed at Canada, China, Mexico, Europe and other countries has yet to make a deep mark on the U.S. economy, but experts warn the trade measures could drive up inflation and slam growth — a toxic stew known as “stagflation.”
Despite signs that the economy is weakening, most Wall Street economists don’t expect a recession anytime soon. And in spite of market turbulence caused by Mr. Trump’s tariff threats, some experts think stocks are likely to gain strength in the months to come, although not without periodic bouts of volatility.
“We continue to expect the S&P 500 to reach 6,600 by the end of the year supported by Fed easing, healthy economic and profit growth, as well as AI spending and adoption,” Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, said in an email on Wednesday. “Investors should consider buying the dip in quality AI stocks, and utilize structured strategies to manage downside risks in their equity exposure.”
John Canavan, lead analyst at Oxford Economics, told investors in a report ahead of the Fed meeting that “markets may have recently become overly pessimistic.” Although he doesn’t expect a recession, he forecasts slower economic growth and described the economy as “vulnerable.”
The impact of tariffs and the health of the economy will, of course, help shape the Fed’s decision on interest rates, and for policymakers the task amounts to threading the needle. Easing borrowing costs sooner rather than later would shore up growth, but also boost inflation — anathema to consumers worn down by nearly three years of high prices. By contrast, waiting too long to cut rates could cause the economy to stall.
Investors now think there’s a good chance the Fed will lower the federal funds rate three times this year, or a total of three-quarters of a percentage point, according to Pantheon Macroeconomics.
“But with economic policy uncertainty elevated, stock prices down and consumer and business confidence rattled, the [Federal Open Market Committee] will keep its options open,” analysts with the investment adviser predicted in a research note.
