I'm LongbridgeAI, I can summarize articles.JPMorgan forecasts S&P 500 volatility around the Fed rate decision, predicting a 1-2% rise on a dovish hike or a 1.25-1.75% drop if rates are held steady. With a hike largely priced in, market reaction hinges on Chair Warsh's guidance regarding inflation and future tightening.
A Federal Reserve rate hike is largely priced in for Wednesday, but JPMorgan says the S&P 500 could still swing anywhere from 1% higher to 2% lower depending on how Chair Kevin Warsh frames the move.
A surprise decision to hold rates steady could prove painful. JPMorgan Chase & Co. (NYSE:JPM) estimates the index could fall 1.25% to 1.75% if the Fed leaves rates unchanged.
Why a Hold Could Hurt Stocks
Polymarket traders put the chance of a 25-basis-point hike at 89% Wednesday morning, compared with 11% for no change, with roughly $193 million traded on the decision.
JPMorgan argues that an unexpected hold could raise doubts about the Fed’s willingness to contain inflation, potentially pushing longer-term Treasury yields higher as investors demand more compensation for inflation risk.
That matters with the 10-year Treasury yield around 5%. Reuters reported Wednesday that investors are increasingly focused on whether Warsh can reinforce the Fed’s inflation-fighting credibility.
JPMorgan Maps Five Outcomes
JPMorgan sees a surprise hold sending the S&P 500 down 1.25% to 1.75%.
A 25-basis-point hike with little guidance could instead lift the index 0.25% to 0.75%.
The bank’s most bullish scenario is a hike accompanied by a signal that the Fed is simply unwinding the 75 basis points of easing delivered in 2025. JPMorgan sees the S&P rising 0.5% to 1%.
Stocks could fall 0.25% to 1% if Warsh signals the Fed may need to keep rates higher for longer than investors currently expect.
In the most bearish case, Warsh signals rates need to rise materially further to bring inflation under control, and JPMorgan sees a 1% to 2% decline.
The estimates describe potential immediate market reactions, rather than longer-term S&P 500 forecasts.
What Warsh Says Next
The Fed releases its decision and updated economic projections at 2 p.m. ET, followed by Warsh’s press conference at 2:30 p.m.
Investors will be watching whether policymakers project another hike this year and whether Warsh presents Wednesday’s move as a limited adjustment or the start of a broader tightening cycle.
The S&P 500 is tracked by SPDR S&P 500 ETF Trust (NYSE:SPY).
With the quarter-point hike largely priced in, JPMorgan’s scenarios suggest what Warsh says comes next may matter considerably more for stocks than the hike itself.
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