S&P500: Traders Await Fed Decision Today With 2026 Forecast Set to Drive US Indices

Fed Poised for a ‘Hawkish Cut’ as Markets Brace for December Volatility

The Federal Reserve is set to deliver its third consecutive rate cut, with markets pricing in an 87% probability of a 25-basis-point move that would bring the target range to 3.5%–3.75%. But traders are more focused on the tone of the post-decision communication, which is expected to signal a higher bar for further easing.

Committee members remain divided between those advocating additional cuts to support a slowing labor market and those warning that more easing could worsen inflation pressures. This division is why investors expect what has been called a “hawkish cut”—a reduction paired with messaging that another move is unlikely in the near term.

FOMC Split Raises Stakes for the Dot Plot

The meeting’s statement and Chair Jerome Powell’s remarks are expected to highlight that policy may now be sufficiently restrictive. Economists anticipate a return to guidance referencing the “extent and timing of additional adjustments,” reinforcing that future cuts will depend on incoming data.

The dot plot will be central to trader reaction, showing where all 19 participants stand on rates through 2026. Several soft dissents are expected, reflecting differing views on inflation risks and the outlook for growth.

Recent labor data has shown hiring softening, with October job openings steady but hiring lower by 218,000 and layoffs rising by 73,000.

Inflation remains elevated, with the Fed’s preferred measure at 2.8%, keeping policymakers cautious despite the economic drag from prior tightening. Some officials, including former Cleveland Fed President Loretta Mester, argue policy must remain restrictive until inflation is decisively moving toward 2%.

Investor Sentiment Tied to Fed Projections for 2026

Equity markets have rebounded sharply into December, pushing the S&P 500 within 0.3% of its all-time closing high. Traders see the December cut as effectively priced in; the market-moving variable will be how many cuts policymakers project for 2026. Investors currently assume two to four reductions, and any deviation could temper expectations for a year-end rally.

Options markets underscore the uncertainty. Contracts expiring Dec. 10 imply a 1.3% swing in the S&P 500 on Fed day, the largest expected move through year-end. Institutional models remain fragile following the shutdown’s data blackout, leaving trading desks reactive and increasing the potential for sharp reversals.

Market Forecast: Cautiously Bullish

With sentiment skewing more bullish than bearish and no major economic threats emerging, the short-term outlook leans positive. However, a hawkish tone from Powell or reduced scope for 2026 easing could limit upside momentum. Traders should expect volatility, but the bias favors a modestly bullish setup into year-end.

More Information in our Economic Calendar.