Stock market crash concerns are looming large ahead of the Federal Reserve’s first Federal Open Market Committee (FOMC) meeting of the year, set for Wednesday, Jan. 31. While the central bank is expected to hold the benchmark rate steady at this month’s policy meeting, recent economic data has offered compelling evidence that an early rate cut may be justified.

Indeed, the December Personal Consumption Expenditures (PCE) report shocked economists last week as the Fed’s favorite inflation gauge showed that prices eased substantially in the final month of 2023.

Per the PCE, headline inflation held steady at 2.6% in December while core PCE — which excludes volatile categories like food and energy — fell to just 2.9%, the first reading below 3% since March 2021. For context, the core PCE is the inflation metric most cited by Fed Chair Jerome Powell.

This has fueled speculation that the central bank may speed up its rate-cut schedule, with inflation well on the way to its long-stated 2% goal.

Stock Market Crash Fears in Full Swing Ahead of Rate-Cut Decision

The Fed has already hinted at three or more rate cuts coming this year. Now, the major point of debate is the timing of its quantitative easing (QE) process.

Indeed, depending on who you ask, you may get wildly varying answers on when the central bank will begin to lower interest rates. While most agree that it’s very unlikely that the Fed will opt to begin cutting rates at this month’s meeting, the Fed has been known to take drastic measures in the face of surprising economic data, which this month’s PCE would certainly qualify as.

When interest rates fall, spending and economic growth tends to increase. As such, Wall Street has been keeping a close eye on the Fed for any sign of an impending rate cut.

That said, the baseline scenario is that the Fed will opt to hold rates steady this week. Especially given the surprisingly tight labor market, economists by and large see the Fed taking a “wait and see” attitude, ensuring that disinflation is truly on the way before making any major monetary policy decisions.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.