Federal Reserve Rate Decision on September 18: Market Split on 25 or 50 Basis Point Cut
The upcoming Federal Reserve rate decision on September 18 is causing a stir in the market, with Evercore ISI strategists indicating that it is "too close to call." The uncertainty surrounding the decision has created a "coin flip" scenario, with potential for heightened market volatility regardless of the outcome. Evercore warns that both stock and currency markets could react sharply to the Fed's decision.
Drawing parallels to the 2000 U.S. election and its "Hanging Chads" situation, Evercore notes that the Fed was slow to cut rates back then, leading to a recession. In contrast, the central bank must now be cautious not to delay critical decisions in the face of uncertainty.
Strategists believe that a 50 basis point cut could cause the yen to strengthen, potentially pressuring U.S. stocks below the critical 140 level. On the other hand, a 25 basis point cut might have the opposite effect. The focus will then shift to the November 7 FOMC meeting, which will occur just two days after the U.S. presidential election. Evercore warns that there is a possibility the election outcome may not be immediately clear, similar to the 2000 election.
Looking ahead, Evercore suggests that the Fed needs to signal its readiness for a "Jumbo" cut on November 7, potentially at least 25 basis points larger than the September cut, if political uncertainty and economic softness persist. Despite near-term volatility, Evercore predicts that the S&P 500 could still hit 6,000 by year-end.
In the long term, the firm remains focused on earnings growth, believing that it will be rewarded by the market once uncertainty subsides. As a result, strategists have raised their 2024 S&P 500 earnings per share estimates to $240 from $238, and 2025 estimates to $257 from $251.
In conclusion, the Federal Reserve's upcoming rate decision and the potential market reaction highlight the importance of staying informed and prepared for possible volatility in the financial markets. Keeping an eye on key events like the Fed's decisions and the U.S. presidential election can help individuals make informed decisions about their finances and investments.