MW Why Powell's remarks could make for a volatile Fed day - with or without a rate cut
By Gordon Gottsegen
Recently, the stock market has done better on average when the Fed decided to hold rates instead of cut them
Investors are awaiting the Federal Reserve's monetary-policy decision on Wednesday - and for the news briefing that follows.
The Federal Reserve is convening for its Federal Open Markets Committee meeting this week, and it's expected to disclose future plans for monetary policy - including whether it should adjust interest rates - on Wednesday afternoon.
Currently, investors don't anticipate any change to interest rates coming out of this meeting, with the fed fund futures market pricing in a 97% chance that the Fed leaves its rate unchanged, according to CME FedWatch. But even if the Fed doesn't change rates, investors can still expect the stock market to churn.
Historical data shows that the S&P 500 index SPX often whipsaws both higher and lower on the second day of the FOMC meeting when the Fed releases its monetary-policy decision, and 30 minutes later when Fed chair Jerome Powell has his press conference. With the S&P 500 closing at a new record Tuesday, the day before the FOMC announcement, this Fed-day volatility could push the index past the 7,000 level for the first time, or it could hinder its advance.
"We get the scripted remarks at 2 p.m. [Eastern time], the press conference begins at 2:30 p.m. and the market is all over the place between that period because it doesn't really know how to interpret what the Fed is saying," Liz Thomas, head of investment strategy at SoFi, told MarketWatch. "It usually takes about 24 hours for the market to really digest what just happened. Oftentimes we find ourselves back, very close to where we started."
Thomas' claims are backed by data. Going back to the start of 2024, the S&P 500 has averaged a 0.02% gain on FOMC decision days - essentially flat - according to Dow Jones Market Data. However, the average performance looked different on days that the Fed changed rates versus leaving them the same. The S&P 500 gained 0.2%, on average, on days that the Fed held rates steady, and dropped 0.3% on days when the Fed changed rates.
Digging deeper, the only rate changes since the start of 2024 have been rate cuts - implying that the S&P 500 has performed worse when the Fed cut rates. However, the Fed has only changed rates six times in this time frame, which is a small sample size. On top of that, the S&P 500 fell almost 3% on the day of the Dec. 18, 2024, FOMC meeting, which skews the data heavily to the downside. Without that outlier, the average S&P 500 return on rate-cut days would show a modest gain similar to the days when rates were held in place.
Markets may react strongly in response to Powell's speech
However, with or without a rate change, volatility usually kicks up after the FOMC decision is released and continues through the press conference. In lieu of a rate cut, investors are wondering if Powell will reveal any information about monetary policy going forward.
"The bigger risk for volatility may be if the Fed signals a more cautious stance on future rate cuts," Chris Larkin, the managing director of trading and investing at E-Trade, told MarketWatch.
That happened in December 2024, when despite delivering an additional rate cut, the Fed called into question future cuts and wouldn't rule out the prospect of raising rates. The stock market dropped dramatically in response.
Read: Here's what investors want even more than a Fed interest-rate cut this week
The other elephant in the room is the future composition of the Fed. Investors have been waiting to hear who President Donald Trump will pick as the next Fed chair, since Powell's term as chair ends in May. Additionally, the Supreme Court is currently weighing the legality of Trump's firing of Fed governor Lisa Cook, and Powell recently announced that he's the subject of a criminal investigation. Powell issued a statement earlier this month, saying that he believed the investigation was a consequence of "setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president."
Both the stock market and bond market have been sensitive to the idea of White House encroachments on Fed independence, so investors may be wondering if Powell will address the investigation during his press conference.
"Having issued a statement a couple of weeks ago, Powell may simply defer to that and reiterate that he believes in the importance of Fed independence, and will continue to focus on the dual mandate," Larkin said.
Jeff Rosenkranz, a portfolio manager at Shelton Capital, said that he does have questions about who will be part of the Fed in the coming months, but he doesn't anticipate any answers to that coming out of this FOMC meeting.
So instead, he'll be paying attention to what the Fed says about the economy.
"If there were to be something that creates some volatility, the most likely culprit- that [Powell] might actually be willing to talk about - is his views on how the economy is evolving as they've been getting more data coming out of the shutdown," Rosenkranz told MarketWatch.
Some of this recent data points to economic growth heating up in recent months. But both investors and the Fed may be sensitive to economic growth because too much growth could lead to a reacceleration of inflation.
"As we work through the tail end of that initial tariff impact, are they going to be OK maybe cutting [rates], or are they worried about a reacceleration of inflation? That's the fundamental question," Rosenkranz said.
Mike DeStefano contributed
-Gordon Gottsegen
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January 28, 2026 07:30 ET (12:30 GMT)
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