All Eyes on the Fed: Wall Street Braces for the Final Cut of 2025

Markets Freeze as the Fed Takes Center Stage

Wall Street entered “wait-and-see mode” on Tuesday as the Federal Reserve kicked off its final two-day policy meeting of the year. The big moment arrives at 2 p.m. ET, when the FOMC is expected to deliver a quarter-point rate cut, its second in the cycle.

Odds of a cut: 87.4% (CME FedWatch), up sharply from just 30% a month ago
Catalyst: A wave of dovish signals from key policymakers, including NY Fed President John Williams

Markets barely moved ahead of the announcement:

S&P 500: –0.09%
Dow: –0.38%
Nasdaq: +0.13%
Hot Stock: $Newmont Mining(NEM)$ +5.7%
Biggest Loser: $AutoZone(AZO)$ -7.2%
Best Sector: Energy +0.7%
Worst Sector: Healthcare -1.0%

Small caps continued their surge, with the Russell 2000 marking its second-highest close ever, as investors positioned for a lower-rate environment.

Why Small Caps Matter This Time

IWM

Historically, the first year of rate-cut cycles has delivered outsized returns for small-cap stocks, and investors are betting on a repeat.

Small-cap companies are more leveraged
They generate more domestic revenue
Lower rates directly improve profitability

In the last four cutting cycles, small caps outperformed large caps by 6-10 percentage points in the first 12 months.

What Could Go Wrong: A Hawkish Pause

Even if the Fed delivers the expected cut, the real market mover will be the Summary of Economic Projections, especially the 2026 rate path.

If the Fed signals a long pause, investors could be disappointed
Markets currently price over 90% odds of another cut by April
Any reduction in those odds may keep Treasury yields range-bound
Powell’s press conference at 2:30 p.m. ET could trigger sharp late-day volatility

Powell

JPMorgan Shock: Costs Surge, Stock Sinks

The biggest corporate story of the day came from $JPMorgan Chase(JPM)$ , whose stock dropped 4.7%, erasing 90 points from the Dow.

The trigger: At a Goldman Sachs conference, Consumer & Community Bank CEO Marianne Lake revealed:

2026 firmwide expenses expected to hit $105 billion
That’s 3.6% above Wall Street estimates
And 9% higher than projected 2025 expenses

JPM

Lake emphasized that the higher costs are “high-quality investments,” including:

AI initiatives
Branch expansion
Enhanced credit-card products
Higher incentive compensation

Investors were unconvinced, JPM shares slid immediately after her remarks.

What’s Coming

Earnings: $Adobe(ADBE)$ , $Oracle(ORCL)$ Synopsys, Chewy, Nordson
FOMC Decision: Expected cut to 3.5%–3.75% range
Powell Press Conference at 2:30 p.m. ET

Conclusion

The stage is set for one of the most consequential Fed days of the year. A rate cut is almost certain, but the tone, projections, and Powell’s language will determine whether markets finish 2025 with relief… or a new wave of uncertainty.

Small caps are already positioning for a softer policy path. Now investors just need the Fed to cooperate…

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