Tom Lee: Fed 25-bp Hike Could Ignite U.S. Stock Rally

Tom Lee, founder of Fundstrat, expects the Federal Reserve to raise interest rates by 25 basis points at the Federal Open Market Committee meeting today, with a decision due at 2 p.m. ET. He expects the increase to remove pressure for additional hikes and to push Treasury yields lower, which he says would support stocks.

Lee cited research from Goldman Sachs estimating four temporary factors-portfolio fees, flash memory prices, tariffs and energy-add about 1.7 percentage points to headline Personal Consumption Expenditures inflation. He estimated those distortions could fade within six months and reduce PCE inflation by roughly 100 basis points without further policy tightening.

Lee questioned whether the Fed needs to speed up rate increases, saying, “I don’t know if the Fed really needs to accelerate that process.” He views the expected rise as reflecting market pressures more than the Fed’s own assessment of the economy.

He expects investors to treat the increase as the final hike in the current tightening cycle. Lee noted heavy cash on the sidelines and a recent string of down trading days as factors that could give markets fuel for a rebound after the Fed acts.

Lee reiterated that corporate earnings have not yet peaked and highlighted weak housing investment as room for future growth, estimating a recovery could add $30 to $50 to S&P 500 earnings. Based on that view, he maintained that the S&P 500 could top 8,200 by year-end. Technology and software stocks have led recent gains, he added.

Artificial intelligence remains central to Lee’s case for U.S. economic growth, though he acknowledged growing questions about AI safety and oversight. He warned of the potential for a larger market pullback later in the year tied to elevated margin debt, leverage and initial public offering activity.

Lee noted that widespread investor pessimism has so far kept markets from peaking.