The Federal Reserve is unlikely to raise interest rates this week, but could the US stock market still decline?

Over the past six weeks, investors have had more questions than answers about US monetary policy and the outlook for financial markets.

Although the Federal Reserve is expected to keep policy rates unchanged on Wednesday, Powell could still disrupt the market as he seeks clues about the Fed's thinking.

Powell's statement is expected to be consistent with his remarks at the Jackson Hole Symposium in August, but market analysts say his Q&A session with reporters and the latest "dot plot" of policymakers' rate forecasts could provide market-moving news.

What are investors looking for?

Currently, investors expect the Fed to start cutting rates again in mid-2020. Analysts say any factors that could dispel this expectation could weigh on US stocks while boosting bond yields and the dollar.

Liz Ann Sonders, Chief Investment Strategist at Schwab, said that the Q&A session at the post-meeting press conference could provide some clues, which often have a greater impact on the market than Powell's statement.

Sonders said, "The 45 minutes to 1 hour after the statement is often the time of greater market volatility." "This is where they talk about the longer period of higher rates and the expectation of rate cuts in 2024, and whether Powell will push back on that."

Is the economy shifting?

Since early August, more and more data has shown that the US economy may finally be responding to the pressure from the Fed's most aggressive rate hikes since the 1980s.

There are also signs that the hot labor market may be cooling off. At the same time, some on Wall Street have started to worry about stagflation, and current market pricing suggests about a 50% chance of the Fed keeping rates unchanged.

Making the situation more complicated is the threat of auto worker strikes and government shutdowns, which could impact the economy.

Gregory Daco, Chief Economist at EY, said, "The triple threat of the resumption of student loan payments, government shutdown, and auto union strikes could severely drag down US GDP growth in the fourth quarter."

How will US stocks perform?

Powell may be asked to comment on any or all of these issues. He may also be asked to directly address investors' expectations for the timing of the Fed's first rate cut in this cycle.

Expectations for a policy shift proved premature last summer, leading to a brief but strong bear market rally that ultimately failed.

Sosnick said a replay of this scenario could once again pose problems for US stocks. "Let's see if the Fed agrees with the market's assumptions about rate cuts," he added.

According to CME's Fed Watch tool, traders expect the Fed to keep rates unchanged on Wednesday, but