Wall Street’s major indices opened flat on Tuesday as investors anticipated potential interest rate cuts from the Federal Reserve on Wednesday.
In the early hours of trading, the Dow Jones Industrial Average (.DJI) edged up 36.1 points, or 0.08%, to 45,919.54. The S&P 500 (.SPX) gained 8.9 points, or 0.13%, reaching 6,624.13, while the Nasdaq Composite (.IXIC) rose 48.7 points, or 0.22%, to 22,397.50.
The US Federal Reserve’s two-day policy meeting kicks off on Tuesday, September 16, and it could not come at a more delicate moment. With inflation refusing to cool, job growth faltering, and political pressure mounting, the Fed has some tough calls to make.
Fed’s policy meeting
Most market watchers are betting that the Federal Open Market Committee (FOMC) will announce a 25-basis-point rate cut when the meeting wraps up on Wednesday, September 17.
Expectations from the meeting
Some analysts even believe there’s an outside chance of a more aggressive 50-basis-point cut, though that is seen as less likely given persistent inflation risks.
Fed Chair Jerome Powell has already hinted that some “policy adjustments” could be on the horizon.
In his speech at the Jackson Hole symposium on August 22, he acknowledged that the economic outlook has become more complicated. Inflation remains stubbornly high, and the labour market, once a strong point in the US economy, is showing signs of weakness.
Adding to the complexity is political pressure from President Donald Trump, who has repeatedly urged the Fed to slash interest rates sharply.
While Powell has largely held his ground so far, Trump’s influence continues to be a wild card.
Recent job market figures have added urgency to the situation. In August, the US economy added just 22,000 jobs, a steep drop from 79,000 in July.
Even more concerning, revised data shows that the country created 911,000 fewer jobs in the year through March than previously reported.
Unemployment also crept up, hitting 4.3% in August compared to 4.2% in July. That may not sound like a huge jump, but it is a clear signal that momentum is slowing.
Meanwhile, inflation is still running hot. Consumer prices rose by 2.9% year-over-year in August, up from 2.7% in July, the sharpest increase since January.
The Fed’s preferred measure, the Personal Consumption Expenditures (PCE) index, held steady at 2.6% in July, with August numbers due later this month.
The rise in inflation comes amid ongoing trade tensions and restrictive immigration policies, both of which have the potential to push prices even higher and weigh further on the labour market.
Given the conflicting signals, sluggish job growth on one side and sticky inflation on the other, most experts expect the Fed to play it safe with a moderate 25-bps cut this week. A larger cut seems unlikely for now, but the door remains open for further easing later this year.