Is Now the Right Time to Invest in Stocks or Should You Wait for the Fed's Rate Cut Decision?

The U.S. stock market has been at or near record levels, buoyed in part by expectations that the Federal Reserve will begin cutting interest rates. Analysts suggest that the market is up despite, not because of, a weakening jobs market and consumers reporting that they have to cut back on spending due to rising inflation and the Trump tariffs. That makes it far more likely that the Fed will lower interest rates to help keep the economy moving.

With these expectations already settling into the prices of Treasury yields, bond market futures, and stocks, should you act now or wait for the anticipated rate cut mid-week?

What Market Watchers Are Expecting

Wall Street is almost certain that the Fed will cut rates at its next meeting, with futures markets pricing in a better than 90% chance of a quarter-point cut. Economists largely agree: a recent Reuters poll found almost every forecaster expects a cut at the mid-September meeting, with most predicting another by the end of the year.

The big banks are split on how far the Fed will go. Bank of America (BAC) analysts expect two 25-basis-point cuts this year—one in September and one in December—while Morgan Stanley (MS) has gone further, forecasting four straight quarter-point cuts stretching into early 2026. That divergence highlights just how uncertain the path ahead is.

The Fed is nearing what has historically been a perilous position: inflation has been climbing this year, even as the job market has stalled, bringing the U.S. close to a period of stagflation. That means that if the Fed cuts interest rates too much, it risks sparking an inflationary spiral; however, if it doesn’t cut rates enough, the economy could stall.

How Investors Should Respond

If the Fed delivers less than markets have priced in—say, just a modest 25-point cut without a clear suggestion of more—stocks could wobble as some traders sell off to take their gains. However, should multiple cuts come through in the coming months, that could extend the rally, especially in rate-sensitive sectors like Big Tech and housing. That suggests two very different options: wait and see as the market reacts to potentially more modest cuts than expected, or buy stocks to profit from the expected gains.

The choice boils down to your risk tolerance. If you can handle volatility, putting some money to work early may pay off. If you prefer caution, waiting until after the Fed acts could make more sense—even if it means missing the first leg of a further rally.

What History Tells Us About Rate Cuts and Stocks

History suggests stocks tend to perform well once the Fed pivots from raising rates to cutting them. Research from Morningstar shows that stocks often outperform cash and bonds in the “pause” period between the last hike and the first cut, and gains typically continue in the months that follow (see chart below).

But not every cycle is the same. In the early 2000s and again during the 2008 crisis, rate cuts coincided with recessions—so markets still had heavy losses despite an easing up of rates. The key difference is whether cuts are seen as preemptive support for a slowing economy, or a rescue move as a recession is starting to pummel the Americans’ wallets.

Right now, with unemployment still relatively low, investors are betting on the first scenario.

The Bottom Line

There’s never a perfect time to jump into the market, but history suggests stocks often rally before, during, and after Federal Reserve rate cuts—if there’s no recession in the offing. Waiting could mean missing out should the market gain momentum.

A practical middle ground might be to invest gradually—through dollar-cost averaging or smaller allocations—while keeping some cash ready for prospects once the Fed’s path becomes clearer. Ultimately, your risk tolerance and time horizon are more important than whether you perfectly time the Fed’s moves.