Why next Wednesday is D-day for investors

There's few workplace meetings that have taken on the near-mythological significance of the US Federal Reserve's Oct-annual FOMC meeting. 

Next Wednesday, the US Federal Reserve will again meet and reveal whether it is going to cut US interest rates for the first time this year.

The market certainly expects it to, with the CME FedWatch tool suggesting a 100% chance of a rate cut, based on 30-day Fed Funds futures prices.

That should be music to the ears of US equities investors who are uneasy about how much further already-stretched stock valuations can go. 

A rate cut could signal that the Fed is satisfied inflation is under control for now and is instead looking to bolster a US economy before it starts to flail. 

That would likely be a bullish booster for stock markets that it's still full steam ahead on 2025's surprisingly-resilient stock market rally. And where US stocks go, the rest of the world often follows.

A hold, or heaven forbid, a rise, would throw a spanner in the works and take the air out of the balloon. 

With many of the world's leading stock markets at record highs right now, it seems silly to describe any potential rate cut as a necessary shot-in-the-arm for the US economy. 

But below the headline figures, the picture is more of a mixed bag. 

Figures released by the Bureau of Labor Statistics earlier this week showed the US actually created almost 1 million fewer jobs than expected in the 12-month period to March 2025.

That cut the forecasted jobs growth figure by more than 50% and suggests the US economy isn't in as rude a health as many believed. 

Q2 earnings growth for the S&P 500 was up to around 12%, well above the 4-5% predicted. 

Most significantly, the Bureau of Labor Statistics published the US CPI figure for August overnight, which showed annualised inflation had risen to 2.9%, the highest figure since January.

It didn't discourage markets, even if it dampened hopes of a 50 basis point (bps) cut next week. 

Before that report dropped, markets had put the chance of a 25 bps cut at 91%, according to the CME FedWatch tracker, with a 50 bps cut at 9%. 

Those figures are now 94% and 6% respectively ahead of next Wednesday's all-important FOMC meeting. 

It means what used to be a fairly-unremarkable fiscal process best left to the wonks and weirdos is now firmly in the realms of epic economic drama. 

And the stakes have never been higher.

Jerome Powell and the rest of the Fed are tasked with balancing the demands of an increasingly-impudent White House, stubborn inflation, a jittery bond market and a wider of backdrop of tariff and political uncertainty. 

This wasn't always in the job description. 

It also leaves the Fed in the unenviable position where it loses even if it gets everything right. 

Say it cuts rates and then inflation falls, critics will say it should have cut rates earlier, even if the data suggested it was right to wait before cutting. 

Say it makes the unpopular decision to hold or raise rates and then inflation goes up. Critics like Trump will blame it on a passive Fed and then still demand rate cuts anyway. 

The same is true in the other direction. 

What happens if the Fed cuts rates and then both inflation and unemployment surge? What happens if it leaves rates and new data shows the US is veering towards negative growth? 

In an increasingly-complex economic world, the blunt instrument of rate cuts isn't refined enough to solve all the ills that are being foisted on its doorstep. 

But for equities investors, an expected rate cut could be a sugar hit to an already-amped up stock market. They just better hope they're not left feeling sick when the rush wears off.