Fed decision ‘too close to call’, says Evercore By Investing.com

The Federal Reserve’s next rate decision on Sept. 18 is “too close to call,” with the market almost evenly split between a 25- or 50-basis-point cut, according to Evercore ISI strategists.

This uncertainty has created a “coin flip” scenario, with the potential for increased market volatility regardless of the outcome. Evercore warns that both stock and currency markets could react sharply to the decision.

The uncertainty reflects the current US political climate, with Evercore drawing comparisons to the 2000 US election and the situation in “Hanging Bodies”, where the results remained unclear for weeks. Back then, the Fed “was slow to cut rates,” the investment bank notes, leading to a recession.

Unlike in 2000, the central bank must be careful not to postpone critical decisions in the face of uncertainty, Evercore adds.

Strategists believe a cut of 50 basis points could cause the yen to strengthen, potentially driving it below the critical 140 level, which would put pressure on US stocks. On the other hand, a cut of 25 basis points could have the “opposite effect”, they added.

The refractor moves quickly from September 18 to the November 7 FOMC meeting, which will take place just two days after the US presidential election. Evercore warns that there is a chance that the outcome of the election will not be immediately clear, drawing comparisons to the 2000 election.

The Fed must therefore signal its readiness for a “jumbo” cut on Nov. 7, potentially at least 25 basis points higher than the September cut, if political uncertainty and economic softness continue, according to Evercore.

As the market awaits the interest rate decision, the Evercore team continues to predict that it could reach 6,000 by the end of the year, despite near-term volatility.

The company’s long-term outlook remains focused on earnings growth, which it believes will be rewarded by the market once uncertainty subsides. As such, strategists raised their 2024 S&P 500 earnings per share (EPS) estimates to $240 from $238, and 2025 estimates to $257 from $251.