Fed Rate Hike Decision Priced In, But Market Reactions Vary Widely

The Federal Reserve's interest rate decision is expected to have significant implications for the stock market. A hike in rates is largely priced in, but JPMorgan Chase & Co. estimates that the S&P 500 could swing anywhere from 1% higher to 2% lower depending on how Chair Kevin Warsh frames the move.

Polymarket traders put the chance of a 25-basis-point hike at 89%, compared to 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.

JPMorgan maps five possible outcomes: a surprise hold sending the S&P 500 down 1.25% to 1.75%, a 25-basis-point hike with little guidance lifting the index 0.25% to 0.75%, and several other scenarios based on Warsh's statements.