How will markets move after Federal Reserve cuts rates on Wednesday?

On Wednesday, the Federal Reserve will lower interest rates for the first time this year, citing damage in the labor market as the main reason behind the decision.

This will make 2025 only the third year since 1996 that the Fed has introduced rate cuts with the S&P 500 trading at all-time highs.

That part is unusual, since rate cuts typically arrive during downturns. But right now, the U.S. economy is still growing, stocks are pumping, and inflation hasn’t cooled.

The number of Americans saying jobs are easy to get dropped to 34.1% in August, the lowest number in four years and a 22-point decline since 2023.

While Fed chair Jay Powell leans on labor as justification, everything else looks wild, with core inflation hitting 3.1% in August, way above the Fed’s long-term 2% goal.

On the growth front, GDP is still expanding at more than 3% a year, which isn’t the kind of data that usually calls for rate relief.

Rate cut collides with record-level stock rally

Meanwhile, the S&P 500 just posted its 24th record high this year, as Cryptopolitan reported. Since bottoming in April, the index has climbed more than 35%, making this run one of the strongest five-month surges in recent history, rivaling the rebound after the 2008 financial crash.

Despite those numbers, Powell is expected to announce a 25 basis point cut on Wednesday. But the Federal Reserve did the same thing in 2019 and 2024, and each time, the stock market didn’t panic.

When the Fed eases within 2% of the all-time high, stocks tend to go higher a year later. Data from Carson Research shows that in all 20 similar cases, the S&P 500 was up 12 months after, with an average gain of 13.9%.

But the short-term is a different story. In the month after a rate cut like this, the S&P has dropped 11 out of 22 times. That’s not nothing. Those down months were most common in the late ’80s and early ’90s. Some analysts expect this week’s cut to follow the same pattern: a rocky 30 days, then a stronger year ahead.

The environment is also different now. Rate cuts are landing in the middle of the AI boom. The market is already pricing in faster growth, rising productivity, and expanding margins. But inflation hasn’t backed off, which means lower rates could push everything even higher.

Crypto and commodities surge ahead of the Fed

As Cryptopolitan previously reported, Bitcoin and gold are already moving. Both have been rising in a straight line over the past few weeks, pricing in the reality that lower rates in a hot economy mean higher asset prices.

Gold has made several all-time highs, while Bitcoin stays stuck under $120,000, though its demand has remained sky-high. All that started long before the Fed’s decision, and it’s being reinforced by every inflation print and every tech breakout.

“Markets are already reacting to the liquidity flood,” said Ryan Detrick, Chief Market Strategist at Carson Group. “The trend is clear. When the Fed eases during strong growth, long-term assets benefit.”

One of the stock market’s best performers last session was the Winklevoss twins’ crypto exchange Gemini Space Station, which debuted on Nasdaq Friday. The stock opened at $37.01 on the Nasdaq, about 32% above where its IPO was priced at $28. At one point, shares traded as high as $45.89. The stock closed higher by 14.3%, at $32.

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