A barrage of economic data has tempered investors’ hopes for steady interest rates. Now the Fed will make its move—or not. The Federal Open Market Committee will convene Tuesday and share its rate decision Wednesday afternoon. The committee will deliberate after the release of August job and inflation data, which reverberated through the stock market as investors mulled what the indicators may mean for interest rates. Expectations for a rate hike rose when employment data depicted the labor market as relatively healthy: employers added more jobs than expected in August, and economists revised July and June job numbers upward. (To cool the economy, the Fed can lift the federal funds rate, which can raise rates throughout the economy and curb spending, though it can also slow hiring.) Fed watchers became more confident in their assessment when price data confirmed that inflation remains above the central bank’s 2% target. Wholesale inflation—as measured by the Producer Price Index—came in hotter than expected, and the Consumer Price Index rose 3.4% year-over-year in August, matching the rate recorded in July and economists’ predictions. The Fed meeting lands in the middle of a relatively quiet week otherwise. Salesforce is hosting its annual Dreamforce conference, which will feature remarks from Anthropic CEO Dario Amodei, while August U.S. retail spending estimates are due.

What analysts are saying about U.S. equities
Bank of America: “Fundamental & macro reasons aside, we are entering a seasonally weak period and in our view are overdue for a pullback: we’ve had one 5% pullback this year (in March) vs. three per year typically; 10%+ corrections happen once per year on average, and the last was Spring ‘25. 50% of our bear market signposts are triggered—not as bad as 70% seen in May-June, but still elevated. Our 12-month target of 7800 is nothing to write home about, suggesting +2% from here.”

JPMorgan: “Currently, forward consensus EPS growth is calling for 20%+, and the S&P 500 is trading at ~18x on 2027 EPS. If these strong growth projections are realized, history suggests that the multiple not only has room to re-rate higher but that equities should be able to withstand a 10-year yield level closer to ~6%. While our analysis indicates that the current rates backdrop should not derail equities given the strong earnings anchor, we believe the primary risk remains centered around further geopolitical escalation in the Middle East.”

Deutsche Bank: “We recently added a third 25 bp hike to our outlook—we now expect the Fed to deliver 75 bp of tightening in total, with 25 bp increases in September, December, and next March. This action would unwind the risk management rate cuts the Fed delivered last year. Risks to the view are two-sided. If recent data trends continue, there is scope for the Fed to hike again in October. Dovish scenarios include a sharper tightening of financial conditions and/or an unexpected softening in inflation or in the labor market.”