While the economy and markets dominated Wednesday's Federal Reserve decision, central banks may not have the information they need to reassure investors and prevent another DIP of stocks. The Fed is widely expected to stabilize benchmark rates on Wednesday, but traders are carefully searching for signs of the central bank's next move in economic forecasts and summary of Chair Jerome Powell's press conference. However, these predictions should probably be taken with a single grain of salt, given that tariff policies from the Trump administration remain vague. Analysts at Goldman Sachs suggested that, given the uncertainty of tariff policy regarding inflation, the Fed could continue to forecast two interest rate cuts this year, even if it would be “troubled.” On Wall Street, stocks fell on Tuesday, with the S&P 500 trading again below 10% of its recent highs over signs of a slowdown. Barclays equity strategist Venu Krishna said in a note to client that the market has yet to show signs of “panic” but could create a drawback to Wednesday's event. “Importantly, this could be due to market faith in the Fed Put. This can be done decisively to test this week, for example, at a FOMC meeting solicited by the expected Fed, as advances in inflation are disappointing,” Krishna said. “Fed Put” refers to the idea that central banks adjust their policies to prevent sudden divestment in the stock market. Opportunistic trader Larry Benedict said the Fed may not even need to be a taki to surprise the market. If the central bank is signaling, if it is still taking a waiting approach to tariffs and inflation, it can cause a negative reaction. “What you see from this meeting is clearly not a move towards interest rates, but I think it's actually a level of uncertainty that could surprise the market,” Benedict said. The market hasn't looked like it has a handle that is suitable for the Fed recently. The S&P 500 has fallen on five of the last 10 Fed decision days, according to Factset, with its biggest stretching move down nearly 3% on December 18th, two previous innings. Benedict also noted that CBOE's Volatility Index (VIX) is still well below that level since its sale last August, saying inventory could still fall. The CBOE Volatility Index, sometimes called “Fear Gauge” on .vix 1y Mountain Wall Street, is well below its level since its August sale. “I think the right play here is to have a smaller position. The volatility is a little higher, but what's going on in the market day to day, the volatility isn't that high,” Benedict said. – Reported by Michael Bloom of CNBC.
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