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US stocks remained relatively stable on Wednesday as investors awaited the Federal Reserve’s highly anticipated policy announcement, causing a split in the market regarding the potential magnitude of the rate cut.
The Nasdaq Composite, known for its heavy tech focus, saw a modest 0.1% increase. In contrast, the Dow Jones Industrial Average experienced a slight 0.1% decline, while the S&P 500 hovered just above the flatline.
All eyes were on the Fed as investors speculated on how aggressive the central bank would be in cutting US interest rates for the first time since 2020 at its meeting later that day. This anticipation was evident as stocks inched higher in anticipation of the Fed’s decision.
Given the Federal Reserve’s actions to curb inflation while keeping the economy afloat, a significant policy adjustment was expected by market participants. However, uncertainties loomed over whether the rate cut would be a substantial 0.5% decrease or if the Fed would follow past patterns of implementing smaller 0.25% changes.
Despite previous indications by Fed officials suggesting a 0.25% rate cut earlier in September, traders had begun to wager on a more substantial reduction in the days leading up to the meeting. Fed Funds futures now implied a 60% likelihood of a larger rate cut on Wednesday morning, a significant increase from the 15% probability estimated just a week prior.
The financial industry braced for potential volatility as Wall Street awaited the outcome of the Fed’s decision, recognizing it as one of the most unpredictable in recent years. It was expected that stock, bond, and currency markets would experience significant movements in response to the announcement.
In addition to the rate decision, investors were also closely monitoring the Fed’s updated interest rate projections, which provide insights into policymakers’ expectations for rate cuts in 2024 and 2025. This information, known as the “dot plot,” would be released by the Fed at 2 p.m. ET.
Tech stocks garnered attention as well, with companies like Microsoft and BlackRock announcing plans to raise funds for AI infrastructure development. Meanwhile, Alphabet successfully overturned a $1.7 billion EU antitrust fine related to digital marketing, further influencing market sentiment towards tech companies.
Overall, the US stock market remained in a state of anticipation and cautious optimism as investors awaited the Federal Reserve’s decision and its implications for the economy and financial markets.
