Wall Street’s main indices opened flat ahead of the Federal Reserve’s anticipated policy decision. Market expectations are high that Jerome Powell will announce a 25 bps rate cut later today.
In the early hours of trading, the Dow Jones Industrial Average (.DJI) gained 20.5 points, or 0.04%, reaching 45,778.4. The S&P 500 (.SPX) dipped 1.9 points, or 0.03%, to 6,604.87, while the Nasdaq Composite (.IXIC) saw a minimal decline of 0.9 points, remaining nearly unchanged at 22,333.016.
The Federal Reserve is expected to announce its first interest rate cut of the year on Wednesday afternoon.
The decision, set for release at 2 p.m. ET, comes amid growing challenges for the central bank, from external pressures on its independence to an economy showing signs of strain. Experts remain divided on whether a rate cut is the right move at this point.
The labour market is showing clear signs of slowing. August’s jobs report revealed just 22,000 new jobs were added, far below economists’ expectations.
Additionally, the US lost jobs in June, and so far this year, the economy has gained 598,000 jobs, compared to 1.4 million during the same period in 2024. The unemployment rate also rose to 4.3% last month, the highest level since September 2017 (excluding the Covid-19 pandemic).
A rate cut could make borrowing cheaper, potentially spurring business hiring and reducing credit card rates for consumers.
However, inflation has been rising steadily. Since April, when President Trump announced his “reciprocal” tariffs, inflation has increased from 2.3% to 2.9% in August, above the Fed’s 2% target.
While central banks typically raise rates to combat inflation, the weakening labour market may prompt the Fed to lower rates instead. Currently, the Fed’s key interest rate stands at 4.25% to 4.50%.
Given the current economic dynamics, the Fed’s primary focus seems to be supporting the labour market, which is likely to result in a 25 basis point cut on Wednesday.
If the Fed proceeds with this cut, it could signal the start of a series of reductions, with markets anticipating up to three cuts by the end of the year, totalling 0.75 percentage points.
Many companies have also reported slower consumer spending in recent earnings calls, adding to the concerns over the broader economic outlook.