Stock Futures Lower as Cautious Investors Brace for Fed’s Latest Rate Hike Decision

James Hyerczyk
Updated: Feb 1, 2023, 06:33 GMT+00:00

The markets’ solid performance in January suggests traders are looking for signs that the Fed may pause rate hikes or even announce a pivot.

US Stock Index Futures

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U.S. stock futures are edging lower early Wednesday as investors braced for the Federal Reserve’s interest rate announcement and monetary policy statement later in the session at 19:00 GMT.

Traders are expecting the Federal Reserve to hike its benchmark interest rate by 25 basis points in its latest effort to tame high inflation. However, investors will also be looking to the central bank for guidance on rate policy and its expectations for broader economic developments.

At 23:00 GMT, futures associated with the Dow Jones Industrial Average are off by 48 points or 0.14%. S&P 500 futures and NASDAQ Composite futures are down 0.20% and 0.37%, respectively.

Daily S&P 500 Index

Some Investors Betting on Dovish Tone from Fed

The markets’ solid performance in January suggests traders are expecting a more dovish tone from the Fed, or looking for signs that a pause in hikes or even a pivot is coming soon. Some also believe that recent economic strength likely means the Fed will be able to manage a “soft-landing” if there is a recession.

Powell’s Post-Meeting Remarks Could Set the Tone for Weeks

“Aggressive tightening in 2022 has led to signs of decelerating inflation but from levels that remain unacceptably high,” Ron Temple, chief market strategist at Lazard said in a Tuesday note. “With a 25bps hike already discounted by markets, Powell’s task is to unambiguously signal the Fed’s commitment to tame inflation.”

In other words, we have already heard from central bank policymakers unmistakably telegraphing Wednesday’s policy decision:  a quarter-of-a percentage-point increase in their benchmark interest rate, the smallest since they kicked off their tightening cycle 10 months ago with one the same size.

Less clear is whether Powell and his mates will continue to signal “ongoing increases” ahead of the policy rate as evidence mounts that inflation and the economy are both losing momentum.

The biggest fear for investors is that the Fed will raise rates too high or for too long, and thus put the economy into recession.

Ahead of the Fed rate announcement, the market think the Fed will stop raising rates in March in the 4.75% -5% range. Fed policymakers may be eyeing a June cutoff with the terminal rate over 5%.

After-Hours Market Movers

Companies that reported earnings after the bell Tuesday made up most of the after hour movers.

Shares of social media company Snap sank 14% after the company reported quarterly revenue that was lower than Wall Street expected.

Shares of entertainment company Electronic Arts shed 6.7% after the company reported $2.34 billion in revenue, less than $2.51 billion analysts expected, per Refinitiv.

Additionally, shares of AMD rose 3% after the company reported earnings that beat Wall Street’s sales and profit expectations.

Looking Ahead…

Earnings season continues later today with Peloton and Meta Platforms scheduled to report quarterly results.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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