Rate Hike Odds Soar Ahead of FOMC Meeting, Threatening Bull Market
The stock market has had a phenomenal year so far, with the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) rising by double digits. However, the ongoing issue of persistently elevated inflation may soon bring an end to this bull market run.
The CME Group's proprietary FedWatch Tool shows a heightened probability of a rate hike in September and/or before the end of 2026. As of August 7, there was a 44.4% chance of a quarter-point rate hike at the Federal Open Market Committee (FOMC) meeting on September 16. By September 8, this had increased to 60.6%, with a similar dynamic seen for future meetings.
Fed Chair Kevin Warsh has emphasized the need to deliver price stability, stating that inflation needs to move towards the central bank's long-term 2% target 'at sufficient speed.' A rate hike could be viewed as necessary, but it may also serve as a catalyst to end Wall Street's nearly four-year bull market run.
The artificial intelligence (AI) infrastructure build-out is the stock market's lead catalyst. If Warsh and his FOMC peers vote to raise rates on September 16 or at a meeting shortly thereafter, the cost of financing the expansion of AI data centers will increase, potentially slowing down this growth.