Stock Market Today: Wall Street Is Stuck as the Countdown to a Rate Cut Ticks Closer to Zero

By Associated Press

Published 2 weeks ago on

September 18, 2024

Wall Street awaits Fed's rate decision as markets hover near records, with expectations of a significant cut. (AP/Richard Drew)

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NEW YORK — U.S. stock indexes are holding near their records Wednesday ahead of an announcement in the afternoon that’s expected to kick off a series of cuts to interest rates meant to prevent a recession.

The S&P 500 was 0.2% lower in midday trading and sitting 0.7% below its all-time high set in July. The Dow Jones Industrial Average was down 36 points, or 0.1%, but still near its record set on Monday. The Nasdaq composite fell 0.3%, as of 11:45 a.m. Eastern time.

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Federal Reserve Decision Looms Large

The main event for financial markets, though, is still to come. When the Federal Reserve closes its latest policy meeting Wednesday afternoon, the widespread expectation is that it will announce the first cut to its main interest rate in more than four years.

It would be a momentous event, closing the door on a run where the Fed jacked its federal funds rate to a two-decade high in hopes of slowing the economy enough to stifle the worst inflation in generations. Now that inflation has eased back significantly from its peak two summers ago, the Fed has said it can turn more of its attention toward protecting the job market and overall economy, which have already begun slowing under the weight of higher rates.

The only question is how much the Fed will cut rates by to do so, which can prove to be a tricky balance. Lowering rates would ease the brakes off the economy by making it easier for U.S. businesses and households to borrow. But it could also offer more fuel for inflation.

Balancing Act for the Federal Reserve

Making things more complicated, some critics say the Federal Reserve is moving too late to protect the economy and may have missed the window to prevent a recession. Others, meanwhile, are saying it will need to be careful about cutting rates too much because of the possibility that inflation remains stubbornly higher than it has in recent decades.

For now, the bet on Wall Street is that the Federal Reserve will deliver a larger-than-usual cut to interest rates Wednesday afternoon. Traders are pricing in a roughly 55% probability that it will bypass the traditional-sized move of a quarter of a percentage point and jump directly to a half point, according to data from CME Group.

Treasury yields have been sinking since the spring on excitement about coming cuts to interest rates, but they rose Wednesday amid the debate about how big the afternoon’s move will be.

The 10-year Treasury yield climbed to 3.69% from 3.65% late Tuesday. The two-year yield, which more closely follows expectations for Fed action, rose to 3.66% from 3.60%.

In stock markets abroad, indexes were modestly lower in Europe after finishing higher in much of Asia.

The Bank of Japan and the Bank of England are also holding monetary policy meetings later this week. Neither central bank is expected to move on rates, though the language of what the officials say could be an indicator of later moves and still influence markets.