Most financial markets, especially the broad stock market, are now waiting with "bated breath" for the end of this week's FOMC meeting and Fed Chairman Jerome Powell's rate cut (or not) announcement as well has his comments on rate policy going forward. These comments will be delivered at a press conference to follow the meeting Wednesday afternoon. There is no doubt that economic markets are now influencing the Fed's interest rate decisions. Powell's hawkish policy tone in late 2018 and his plan to aggressively raise interest rates resulted in an equity market plunge. Powell then did an about-face and adopted a "patient" attitude toward raising rates earlier this year, and this has helped propel stock markets higher.
As my previous blog noted, the broad stock market is ambiguous at the moment, and we are waiting for it to make either a definitive top or bottom in our current reversal zone(s) this week or next. Reaction to the Fed may be the decisive factor here. Most analysts are expecting a rate cut (the first in a decade) so if the Fed doesn't deliver, equities will likely drop. If the Fed cuts (probably 1/4 point), equities will likely rally, but that also may depend on Powell's press conference statements. If he hints at more cuts this year and next, stock markets could soar. But if Powell suggests a "cut and wait" philosophy, it might take the wind from the sails of any rally. We will remain on the sidelines as we wait and see how this plays out this week.