4:15pm: Stocks change course
After initially rising following the Fed’s mega interest rate cut, stocks slipped into negative territory to end Wednesday’s session.
The Nasdaq was down 0.3% at 17,573 points, the S&P 500 was down 0.3% at 5,618 points and the Dow Jones fell 0.3% at 41,503 points.
3:30pm: A 'precautionary move'
The Fed's decision to cut rates by 50 basis points aims to support a soft landing for the US economy, according to XTB research director Kathleen Brooks.
“The Fed statement was illuminating because even though the Fed made a large interest rate cut, the first line of the FOMC statement read ‘Recent indicators suggest that the US economy has continued to expand at a solid pace,’” she noted.
“This supports the view that the Fed decided to cut interest rates by 50bps as a precautionary move, to protect the US economy from a potential future recession.”
She also noted the Fed’s shift away from data-watching.
“Fed’s statement said that future rate decisions will depend on ‘incoming information for the economic outlook’, thus, the Fed has moved beyond data dependency, and the economic outlook is key for the future direction of US interest rates,” she said.
“[Fed chair] Jerome Powell said that he would not pre-commit to rate cuts in advance, and the FOMC would make decisions on a meeting-by-meeting basis.”
2:15pm: Stocks buoyed by rate cut
The Federal Reserve has slashed interest rates by 50 basis points to the range of 4.75% to 5%.
The central bank noted that inflation has made “further progress” toward its 2% goal, but remains “somewhat elevated” as economic activity has expanded at a solid pace.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in a statement.
The consensus among Fed officials is two more 25 basis point cuts this year, four cuts in 2025 and two more in 2026.
Traders welcomed the news, with the Nasdaq up 0.8%, the S&P 500 up 0.5% and the Dow Jones adding 0.4%.
1:05pm: A soft landing?
US stocks inched into positive territory ahead of the Fed’s interest rate decision. Expectations for a 50 basis point rate cut have been pared back to a 55% probability, down from 64% a day ago, according to the CME FedWatch tool.
The Nasdaq added 0.1% at 17,653 points, the S&P 500 was up 0.1% at 5,640 points and the Dow Jones added 16 points at 41,622 points.
The Fed’s decision will have ripple effects far and wide, XTB research director Kathleen Brooks wrote.
“If the Fed does cut by 50 basis points as a precautionary measure designed to protect a soft economic landing and to ward off a recession, we think that this move will extend the economic cycle and support growth.
“This would be bullish for stock markets in the short to medium term. Since emerging markets are likely to follow the Fed, then the prospect of large rate hikes in the emerging world may also boost emerging market stock indices.”
11:30am: Markets on edge
Stocks remained flat late morning in cautious trade ahead of the Federal Reserve’s interest rate decision due at 2pm Eastern Time.
“The tension is palpable across markets this afternoon, as they stand on the verge of the most unpredictable Fed meeting in recent memory, and one that seems to provide the most potential for volatility in some time,” IG chief market analysts Chris Beauchamp commented.
“So many questions need to be answered that Powell will have a high bar to clear if he and his committee are to avoid some fairly dramatic moves in volatility coming days.”
Beauchamp noted that for traders, there are “uncomfortable memories” of 2007 when the Fed’s rate cut at the then record highs was followed up by renewed turmoil in financial markets.
“Powell, and many investors, will be hoping the market follows 1995 instead. The situation seems much more like the latter than the former case, but so much of this cycle has been out of the ordinary that no one can rest too easy thinking about the outcome,” he said.
9.54am: Stocks open flat
US stocks got off to a muted start today as traders hold off their bids until the Federal Reserve’s interest rate call later today.
The Nasdaq 100 opened flat at 19,427 while the Dow Jones Industrial Average dipped 0.2% to 41,508.
The broader S&P 500 index also opened flat at 5,635.
Among the top risers on the Nasdaq are Apple Inc (NASDAQ:AAPL, ETR:APC), which is up a percentage point, and Moderna Inc (NASDAQ:MRNA, ETR:0QF), which has added 1.5%.
8.29am: Traders await rate call
US markets will hold steady when trading commences this Wednesday as traders await the hotly anticipated interest rate call from the US Federal Reserve.
Futures on the Nasdaq 100 tech index and the Dow Jones Industrial Average suggest they will open flat at 19,454 and 41,645 respectively.
Likewise, the broader S&P 500 is tipped to open flat at 5,640.
Markets are widely expecting a cut from the Fed, but the jury is still out on whether that will be 25 basis points or a chunkier 50 basis points.