Pre-market price action for the three major indices were trading around the flatline on Wednesday, as investors appeared quite reluctant to open significant positions ahead of the outcome of the Federal Reserve’s two-day policy meeting later today.
The central bank will likely hike its key interest rate by 50 basis points following four consecutive 75 bps increases. Softer-than-expected US inflation data Tuesday added to evidence that price pressures are cooling while reinforcing this narrative of a less aggressive tightening.
Still, a robust job market could force the Fed to lift rates higher than markets are currently pricing, something that investors will parse in the latest projections.
Although yesterday’s price action was positive at the close, the reals story was how high the markets went up but then gave up a majority of the gains at the end of the day. The market is hoping (and hope is not a strategy) that the FED will be ending rate hikes or actually start cutting rates.
This is what CNBC said in this morning’s story: “The signal that inflation may have peaked was positive for stocks as it means the Fed may be one step closer to halting interest rate hikes or switching to cuts, which would fuel equities.”
I think the market may be ahead of itself with this thinking as Chairman Powell spoke last week at the Brookings institute where I heard something totally different. “The time for moderating the pace of rate increases may come as soon as the December meeting,”
But he added that “the timing of that moderation is far less significant than the question of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”
So, I heard we may be able to lower the rate to 50 BPS in December, but we may need to raise rates for a longer timeframe, then keep those rates at higher levels over time. We will know later today.
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