Next Federal Reserve Meeting: The Fed’s Rate-Cut Outlook and What It Means for the S&P 500
The next Federal Reserve meeting is two weeks away. Markets see no chance of policymakers cutting key interest rates for a fourth straight Fed meeting. However, Fed Chairman Jerome Powell’s news conference will shape expectations for Fed meetings in March and the coming months.
A combination of a strong January jobs report, but a cooler-than-expected core CPI inflation reading, didn’t really change the picture. The not-so-bad news for the S&P 500 is that markets are already expecting a hawkish Fed, so there’s little room for disappointment.
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Here’s how a new president will affect Fed rate cuts in 2025.
When is the announcement of the federal meeting?
The next Fed meeting ends on January 29th at 2pm ET. Powell’s news conference will begin at 2:30 p.m
When will the federation be dissolved again?
Currently, markets won’t see another Fed rate cut until the June 18 meeting, when Wall Street is pricing in a 61%-39% chance, according to CME Group’s FedWatch tool.
The odds of a rate cut are just 3% for the January 29 Fed meeting, 24% for the March 19 meeting and 39% for the May 7 meeting.
For 2025, markets are pricing in a year-end federal funds rate of 4.02 percent. A quarter-point decline in market value builds strong odds (80%), but the odds of an additional 25-basis-point move are slim (43%-57%).
Stock Market Outlook 2025: What Does Trump’s Return Mean for Markets?
Federal policy considerations
At least one more Fed rate cut is expected as policymakers still view their current interest-rate setting as restrictive. The Fed aims to take its foot off the brakes to reach neutral before tightening policy unnecessarily weakens the labor market.
But after cutting the key rate by 100 basis points since September, Powell said after the Dec. 18 meeting that the Fed is entering a new phase: “We are cautious about further cuts.”
After that Fed meeting, Powell said that the labor market was still slowing and that the Fed was still confident that inflation, albeit on a difficult path, would move toward 2 percent. While the strong December jobs report cast doubt on the nature of Powell’s “cooling” labor market, December’s better-than-expected inflation readings reinforced Wall Street’s belief that the next move for interest rates will be lower, not higher.
Still, as of Dec. 18, market-based interest rates rose sharply, with the 10-year Treasury yield rising to 4.8% for the first time since October 2023, while the 10-year yield eased to around 4.68%. High long-term rates have contributed to strengthening financial conditions that weigh on economic growth and can influence federal policy.
However, here is President Donald Trump’s policy agenda, tax decision, environmental tariff, tariff, and immigration. Many economists think those policies will contribute to higher inflation this year and could prevent further Fed rate cuts, but there is considerable uncertainty about what will come and how it will affect the economy.
The agenda of the meeting of the Fed
The Fed’s 2pm policy statement will announce its decision to hold the federal funds rate steady or cut it by another 25 basis points.
Policymakers provide updates on the Fed’s balance sheet policy. Each month, the Fed is currently allowing up to $25 billion in Treasuries and $35 billion in government-backed mortgage securities to run off the balance sheet instead of reinvesting the money.
Assuming no rate cut, the S&P 500’s reaction may depend on what Powell said at the news conference. Quarterly federal economic forecasts, including an assessment of each policymaker, will not be released again until the March meeting.
What does a Fed rate cut mean for the S&P 500?
The Fed sets monetary policy to meet its dual obligations of price stability and full employment. Policymakers cut interest rates when the balance of risks tilts too low for inflation — below the Fed’s 2% inflation target — or when unemployment is too high.
When the Fed cuts rates, or has a bias toward missed cuts, as it does now, a “Fed Put” is said to be in effect. A put option provides investors with minimal protection if the stock falls below a certain price. Wall Street says there is a “Fed Put,” implying that if the S&P 500 sells off, Powell & Co. will ride to the rescue, as a falling stock market could cause the Fed to fail its mission.
An environment where the Fed cuts rates doesn’t guarantee that the S&P 500 will move higher, but it does give investors the confidence to buy when markets correct.
History shows that the S&P 500 usually fares well in the 12 months following the Fed’s first move to lower interest rates. In the previous 11 bearish cycles, the S&P 500 has averaged a 14.3% gain in the 12 months following the first bearish cut. The median 12-month S&P 500 gain over 11 cycles has been 20.1%. The main exceptions are after the Fed started cutting in 2001 and 2007, because Fed easing didn’t do enough to hit the recession and S&P 500 returns.
Through Wednesday, the S&P 500 was up 5.6%, a day before the Fed’s surprise 50-basis-point rate cut on Sept. 18.
Be sure to read IBD’s The Big Picture column after each trading day to learn about current stock market trends and what that means for your trading decisions.
Fed meeting calendar 2025
January 28-29
March 18-19 (Quarterly Level and Economic Forecast)
May 6-7
June 17-88 (Quarterly Status and Economic Forecasts)
July 29-30
September 16-17 (Quarterly Level and Economic Forecasts)
October 28-29
December 9-10 (Quarterly Level and Economic Forecasts)
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