Interest Rate Decision Looms : How Will the Stock Market React?

     In one week, the Fed will announce their monumental decision on interest rates. The challenges the central bank faces are unprecedented : the first net negative economic growth since 2022, a challenging leader in the Oval Office, and a trade war that will surely rattle the markets. 

    The consensus remains that the Fed is expected to cut interest rates, yet it is certainly influencing the decision. Jerome Powell has been at the center of Trump's critiques of the Fed, yet this constant barrage of comments is unlikely to make a difference, with Powell stating, "Our independence is a matter of law," showing little resignation on the matter. In all likelihood, the Fed will cut interest rates ever so slightly to facilitate a return to net positive GDP growth, at the same time giving President Trump a "victory." 

    Investors have to remain wary : the stock market has ridden a wave of gains the past week, and while the stock market may continue to ride this green wave in anticipation of the cut, investors must be prepared for disappointing results : current chances for a cut remain at 68%, and inflation remains above the Fed's golden rate of 2%. Furthermore, the stock market tends to have a limited reaction to interest rate cuts, and one must not be misled : tariffs have hurt and will continue to hurt the US economy, and, unless President Trump reneges on his promises of reinstating tariffs, US stocks are sure to take a hit as the first tariff-affected goods arrive at ports, especially ones affected by the remaining China tariff of 145%, such as Nvidia (NVDA). 

    All in all, investors should remain extremely cautious in these times : although Fed rate cuts may bring temporary relief to a hectic market, volatility remains at its highest rate since late 2022, making it unwise to make any spur-of-the-moment investments.

NVDA: +4.3%; DJI: +0.46%; S&P 500: +0.8%; NASDAQ: +1.9%; VIX: -2.7%


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