A trader works, as a screen broadcasts a news conference by Federal Reserve Chair Jerome Powell following the Fed rate announcement on the floor of the New York Stock Exchange on June 12, 2024.
Brendan Mcdermid | Reuters
Stock futures rose slightly Wednesday as Wall Street anticipated the first Federal Reserve interest rate cut in four years. Gains were muted as uncertainty lingered over how big the easing will be from the central bank.
Futures tied to the Dow Jones Industrial Average added 36 points, or 0.1%. S&P 500 futures and Nasdaq-100 futures advanced 0.2% each.
The Fed is expected to deliver its latest policy decision at 2 p.m. ET. The central bank is expected to lower rates by at least a quarter percentage point, but traders are divided over how big the reduction will be. CME Group’s FedWatch tool shows traders pricing in a 65% chance of a half-point cut and 35% odds of a quarter-point move.
It’s unusual to have this much uncertainty into a Fed decision as the central bank typically tries to telegraph its next move to the markets. Traders had believed for most of the last month that the Fed would lower by a quarter point, but the idea of a super-sized cut began to gain traction in the past week.
“You’d have to go back over 15 years to find such an uncertain situation this close to the decision. A lot of money will be made and lost today,” Jim Reid, Deutsche Bank head of global economics and thematic research, wrote in a Wednesday note.
The ushering in of a cutting cycle is expected to shore up a stalling economy and further boost an already strong market, with the S&P 500 at a record following an 18% gain this year. The benchmark has averaged gains of about 16% in the 12 months following the first cut, according to data from Canaccord Genuity.
Despite these market expectations, some investors remain cautious about cutting rates too much, too soon. Peter Cecchini, Axonic Capital’s director of research, called a 50 basis point cut “unusual” as the first move in a cutting cycle from the Fed given the current state of the housing market.
“This is not really the environment where I think the Fed needs to do a 50 basis point cut as a preemptive measure, when historically it’s never done so,” he told CNBC’s “Closing Bell” on Tuesday.
Wall Street is coming off a mixed session that saw the S&P 500 edge up 0.03% after notching another all-time high during intraday trading. The Dow Jones Industrial Average lost nearly 16 points, while the Nasdaq Composite added 0.2%.
