Will the Fed boost or disappoint markets? Stocks to open flat as investors await Powell

Stock futures are pointing at a flattish open on Wednesday, ahead of the highly anticipated Federal Reserve meeting. Chairman Jerome Powell is expected to indicate an interest rate cut for next month. Or so the market hopes.

Futures for the Dow are up 0.1%, while those for the S&P 500 and Nasdaq Composite are flat and up 0.1%, respectively.

Hopes for an impending interest rate cut rose earlier this month, when Powell said the central bank would act as appropriate in ensuring that the US economy will keep growing. The market took this to mean that an economy-boosting rate cut was imminent and stocks rallied, as lower interest rates are good for companies.

At today’s meeting, the Fed is expected to signal that lower rates are coming. That’s why Powell’s press conference following the 2 pm ET policy statement will be so closely watched.

Investors expect that Powell will drop the word “patient” from the statement. Since January, the Fed has said it would be patient in terms of future policy action. But those days might be over.

If Powell meets market expectations Wednesday, stocks could climb higher once again.

The likelihood for a cut at the Fed’s July meeting is at 84%, according to the CME FedWatch tool.

But Powell could disappoint hopes for such swift policy action as well, which would likely push markets lower.

“Given that US unemployment is at a 50-year low, and earnings are outstripping inflation, the Fed might catch out some dealers, and deliver a more neutral update, and should that be the case, we might see stocks pullback from the recent highs,” said David Madden, market analyst at CMC Markets.

Perhaps the central bank is looking for more economic data to show that the US economy is slowing and thus support a rate cut. That strategy would leave hopeful investors high and dry at least until the September policy meeting.

Either way, it could be a volatile day.