Markets Brace for Fed Rate Cut: Short-Term Volatility Expected, Longer-Term Upside for Risk Assets
Investors are gearing up for the Federal Reserve’s Sept. 17 decision, widely expected to deliver a 25-basis-point rate cut. While short-term market volatility is likely, historical patterns suggest longer-term gains for equities, Bitcoin, and gold.
Economic data highlight the Fed’s tightrope. August’s CPI rose 0.4%, pushing annual inflation to 2.9%, with core CPI up 0.3%. Producer prices remain elevated, with core PPI up 2.8% year-over-year—the largest yearly increase since March.
The labor market shows slowing momentum: nonfarm payrolls rose just 22,000, unemployment held at 4.3%, and labor force participation stayed at 62.3%. Average hourly earnings increased 3.7% year-over-year, keeping wage pressures alive.
Bond yields reflect these dynamics, with the 2-year Treasury at 3.56% and the 10-year at 4.07%. CME FedWatch assigns a 93% probability to a 25-basis-point cut, indicating markets have largely priced in easing.
Equities remain elevated: the S&P 500 closed at 6,584, and Nasdaq posted five consecutive record closes. Bitcoin trades near $115,234, while gold approaches $3,643 per ounce.
Historical precedent suggests initial turbulence may give way to strong long-term gains, offering cautious optimism as markets await the Fed’s guidance on growth, inflation, and policy.
