Wall Street’s attention this week centers on the Federal Reserve’s policy meeting Wednesday, where investors are broadly expecting a 25 basis point rate cut.
Markets are pricing in the move after recent weak jobs data and cooling inflation, but the bigger question is whether policymakers will endorse the aggressive easing path traders anticipate.
Deutsche Bank economists expect the Fed to deliver a 25 basis point rate cut and signal that more reductions are likely to follow over the remaining meetings this year.
They project three cuts in total for 2025 to bring the fed funds rate to 3.5–3.75% by year-end.
They caution that the decision may not be unanimous, with potential dissent from both hawkish and dovish members.
Kathleen Brooks, research director at XTB, noted that there are currently just under six rate cuts priced between now and January 2027, raising the risk that the Fed could push back on market expectations if inflation remains stubborn.
The Fed will also release updated economic projections and its “dot plot” of future rate forecasts.
Markets will closely parse these for signs of whether officials plan a measured path of easing or a faster pivot.
Chair Jerome Powell is expected to underscore data dependence in his press conference, with Deutsche Bank suggesting he will avoid calling the labor market “solid” after recent weak job gains, but still describe unemployment as historically low.
Investors are bracing for volatility. Options markets are pricing in “a 1% swing in either direction, which would be one of the biggest daily moves in weeks,” according to Brooks.
After a 10% rally in the S&P 500 over the past three months, she warned that “the market sells the news of the Fed meeting” is a real possibility if guidance falls short of expectations.
Beyond the Fed, a full slate of US economic data could influence sentiment.
Tuesday’s retail sales are forecast to rise just 0.1% headline, held back by weaker vehicle sales, with control group sales up a firmer 0.5%. Industrial production is expected to dip 0.1%, reflecting softer manufacturing and mining activity.
On Wednesday, housing starts are projected to fall to 1.36 million from 1.43 million, while building permits edge up slightly.
Later in the week, jobless claims are expected to retrace last week’s spike, which was largely tied to fraudulent filings in Texas.
The Philadelphia Fed index and leading economic indicators will provide additional insight into momentum heading into the fourth quarter.
Globally, central banks from the UK, Japan, Canada, and Norway are also in play.
The Bank of England is widely expected to hold rates steady, while the Norges Bank and Bank of Japan may fine-tune policy as investors track global growth risks.
Despite weak Chinese retail sales, softer industrial production, and a Fitch downgrade of French sovereign debt, Brooks said “the appetite for risk remains strong and is defying global fears,” keeping equities supported into the Fed meeting.
With US stocks at record highs and AI-linked names leading gains, the Fed’s tone on Wednesday will likely set the tone for the remainder of the quarter.
As Brooks summarized: “Overall, there is a lot resting on this meeting,” with markets betting the Fed will validate the easing narrative.