The Dow Jones (DJIA) is set to open Wednesday’s trading session in positive territory ahead of the Fed interest rate decision at 2 p.m. Eastern Time today.
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A 25 bps reduction is the overwhelming expectation with 94.1% odds, according to CME’s FedWatch tool. At the same time, a 50 bps cut is also possible, although very unlikely, with a slim 5.9% chance.
JPMorgan’s Rate Cut Scenarios
JPMorgan believes a “dovish” cut is the most likely scenario with a 47.5% chance, which it expects will push the market higher by 0.5%. When the Fed is dovish, it signals that rate cuts will likely continue in order to support economic growth.
In addition, the odds of a “hawkish” cut are also elevated at 40%. A hawkish Fed signals that a rate cut may be a one-off event and that rates must stay elevated until inflation is under control. JPMorgan expects this scenario could leave the market flat or push it lower by up to 0.5%.
The bank assigns a 7.5% chance of a 50 bps cut, which could shock the market and result in market moves ranging from a 1.5% decline to a 1.5% gain. The Fed maintaining rates and raising them are also unlikely scenarios, with odds of 4% and 1%, respectively.
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