Fed Decisions in Focus: US Stock Market in the Fast Lane

The US stock market is experiencing a remarkable high this year. The S&P 500 has gained an impressive 27 percent, steering towards one of the best annual performances in the 21st century. A significant contribution to this development is the expectation that the Federal Reserve will lower interest rates multiple times by the end of 2025. The futures market currently anticipates three interest rate cuts of a quarter percentage point each by December 2025. Some Wall Street analysts are even more optimistic. Goldman Sachs predicts three such rate cuts by March 2025, while JPMorgan Chase expects even five cuts by the end of 2025. Although these prospects are encouraging, the forecasts could prove overly optimistic in light of the recent acceleration in inflation. Today could develop into a decisive day, as the Fed will not only announce an interest rate decision but also scrutinize its long-term economic projections. These assessments will be crucial: if fewer rate cuts are announced than investors expect, it could send the stock market into a downturn. The role of the Federal Reserve in setting monetary policy aims to promote stable prices and maximum employment. To this end, policymakers use the key interest rate, which serves as a guideline for other interest rates in the economy. High-interest rates slow economic growth by making borrowing unattractive, which means less inflation but also more unemployment. Conversely, low-interest rates stimulate growth by encouraging more spending, but also bring inflation and lower unemployment.